Mapping Your Voyage of Discovery - CQG.com

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Slow StochasticsSlow Stochastics represent the most popular study in the technical universe and theestablished mantras represent a critical threat to your wellbeing. Designed by George Lane,they take the relationship between the high and low to the close (K line). Then a smoothingis added to create the (D) line. The default setting is shown below. It is rare to see trader’sgoing beyond changing the variable of 14. A typical change is to 10.This connection between the close and the extreme of the bar means that if thisrelationship shifts against the dominant trend the effect on the study is disproportionate.This is exasperated if the studies value is near its limit of range, which can oscillate betweenzero and one hundred. It is the clearest example of the problems of putting a linearcalculation and a data set that is non- linear.However, once the studies characteristics are understood, it is possible to build strategiesaround it and more importantly, take advantage of the ill-informed. It’s a cold fact that ifyou are to make money consistently, you’re going to have to take it off someone who losesconsistently.There are two basic interpretations:• The market is overbought when above 80 and oversold below 20.• Signals are taken when the lines cross in these zones or have crossed and thenmove out of the extreme zones.• Additional use is as a divergence indicator. The market makes a new high, but theStochastic fails to breach its previous high and crosses down. This is also referredto as a Failure Swing. Execution can come either when the lines cross or come outof the extremes.
And with those interpretations comes many misconceptions:• The crossover theory in profitable.Tests reveal that a crossover in an extreme zone is at best random and worst ruinous. Thepower of Stochastics lies in the data you are going to apply it to, or the revised strategy youare going to employ. Stochastics are far better suited in their original interpretation onmarkets that are mean reverting. This applies to spreads or pairs trading on stocks that areusually correlated. There are also some primary markets that are also prone to meanreversion. Dollar Canada (Looney) is one that a standard crossover from overbought oroversold will have more relevance. The chart below is a half-day one with the crossoversmarked.
Page 1 and 2: IntroductionStructure is everything
Page 3 and 4: have been enough. Through time, I b
Page 6 and 7: Part 1Basic Chart TypesConstant vol
Page 8 and 9: The 10-minute chart and the 25,000
Page 10 and 11: Profile® is that linking price, ti
Page 12 and 13: Basic philosophiesIt is primarily u
Page 15 and 16: TFlow and Pre Trade AnalyticsTFlow
Page 17 and 18: This is how my TFlow is first displ
Page 19 and 20: SmoothedSmoothed use a proprietary
Page 21 and 22: This example highlights once more h
Page 23 and 24: What does Entry Signal Evaluator do
Page 25 and 26: Momentum IndicatorsThe vast majorit
Page 30 and 31: This chart is half day of the Eurod
Page 32 and 33: Trend Lines and FibonacciThe need t
Page 34 and 35: PatternsIn many ways, patterns are
Page 36 and 37: FX is an area where no one looks fo
Page 38 and 39: DOJI’SThis the only Candlestick p
Page 40 and 41: Analysis from the Profile Area Tool
Page 42 and 43: Intraday Doji’s can be qualified
Page 44 and 45: The top itself was a Shooting Star
Page 46: Fundamental Analysis.How to interpr

Mapping Your Voyage of Discovery - CQG.com

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