1991issue C031-3
Building a two-stage stochastic oscillator from close location
A two-line oscillator is built by locating the latest close inside a lookback-window high-low range, then smoothing those same ingredients. The lines are scaled from 0 to 100 and read against bands at 80 and 20, with a slower pairing of the second line available.
- Percent-k locates the latest close on a 0-to-100 scale inside the highest high and lowest low of a lookback-window, commonly 5 to 14 days and sometimes 28 days.
- Percent-d is a three-period sum-of-numerator over sum-of-denominator smooth of the same close-location ingredients used for the raw line.
- Joint readings in the overbought-band above 80 or the oversold-band below 20 mark extended states, but a directional cue is not treated as complete until price-oscillator-divergence appears.
- A slow-stochastic display pairs percent-d with a three-day average of that line and is described as less sensitive than showing the raw close-location reading.
Close location as the first stage
The design premise is that late-stage advances tend to close near the session high and late-stage declines tend to close near the session low. The oscillator therefore compares the latest close with the highest high and lowest low over a chosen lookback-window.
In the late 1950s, experimental oscillators were labeled with successive alphabet letters. After two full passes, the pair retained for use was the raw close-location line and its smoothed companion.
The lookback-window is commonly 5 to 14 days and is sometimes extended to 28 days. The result is scaled from 0 to 100 and shown as two lines. Percent-k is the first stage: 100 times the close minus the lookback low, divided by the lookback high minus the lookback low.
A second smooth on the same ingredients
Percent-d is the second stage. It is a three-period sum-of-numerator over sum-of-denominator smooth of the same close-location ingredients used for the raw line.
Bands, extremes, and confirmation
Joint readings above 80 are treated as an overbought-band state. Joint readings below 20 are treated as an oversold-band state. A directional cue is not treated as complete until price and the oscillator diverge.
The oscillator can remain at extremes and flag a reversal too early. Watching for price-oscillator-divergence is presented as a way to cut the number of those premature alerts.
A slower pairing of the second line
A slow-stochastic variant pairs the smoothed line with a three-day moving average of that line. That display is described as less sensitive than showing the raw close-location reading.
All readings on this track · 42 readings
- 1987Stochastic fast and slow construction as a rebuildable stack
- 1989Building the stochastic oscillator from close location
- 1990Monthly stochastics as a multi-year bond regime filter
- 1990Walk-forward screen for yen indicator rules
- 1990Slow stochastic construction for index pullback entries
- 1991Random Walk Index construction with an adaptive lookback
- 1991Building a two-stage stochastic oscillator from close location
- 1992Constructing fast and slow stochastic oscillator lines
- 1992Constructing nested stochastic lookbacks
- 1994Construct the four-state price-volume rank before filtering it
- 1996Crowded stochastics, false breakouts, and hidden stops
- 1997Fade and follow entries from stochastic extremes
- 1998Oversold confirmation as a staged rule-based-entry case
- 1999Constructing regular and slow stochastic oscillators
- 2001Construct a variable-interval simple moving average from stacked extremes
- 2001Threshold RSI and stochastic setups with next-bar stops
- 2001Two tests of a rate-adjusted earnings-yield gap
- 2002Constructing a two-line stochastic from a range-normalized close
- 2002Inspect mechanical stochastic daytrade rules on one bar
- 2003Constructing an adaptive stochastic RSI
- 2003Four parameters that construct a stochastic oscillator
- 2004Volume breakout as signal, pullback as entry
- 2004A first currency-market checklist with two averages and a slow stochastic
- 2005Shared-scale cycle indexes with companion oscillators
- 2005Current-bar versus prior-bar range construction for the stochastic oscillator
- 2005Two-session moving-average pullback short
- 2006Market condition as a permission layer for moving averages and oscillators
- 2008Lock the stop at support before sizing a stochastic entry
- 2010Construct a center-line volume oscillator and read it with a stochastic oscillator
- 2010Sharpened RSI turns with rainbow averages and a slow stochastic
- 2011Build a Spearman rank oscillator from ordered closes
- 2012Gold as a regime-dependent hedge in the euro-area crisis
- 2012Pairing moving averages with variable-length stochastics
- 2014Two-leg stochastic stress oscillator as a rebuild drill
- 2014Ingress dates as price bases for relative strength, stochastics, and moving averages
- 2017Constructing a dual EMA stochastic from range normalization
- 2018Constructing a two-stage stochastic RSI for comparable price-oscillator divergences
- 2018Combining a weekly stochastic, a long moving average, and two-day resistance
- 2018Weekly and daily stochastic readings with a long moving average and support
- 2018A confirming workflow for rotating from discretionary to staples
- 2019Stochastic scan thresholds, averages, and formula syntax
- 2020Constructing Slow %K as a two-stage helper