Frequently Asked Questions
 
 
 

Stochastic Charting Feature
 
 
Hear Barry explain Stochastic Charts
Stochastic Oscillators can reveal clues to Overbought and Oversold conditions that may indicate a shift or reversal in the momentum of the market. Continue reading below the chart for a detailed explanation.
We use two Stochastic Oscillators, Fast and Slow.
The Fast Stochastic will generally provide an earlier indication of a shift in momentum but may offer some false signals.
The Slow Stochastic, while it is normally more accurate, will not typically produce as many signals nor will it be as early an indicator.
Watching both the Fast and Slow Stochastic will give us a good sense of when the market may be turning directions.
Stochastic Oscillators have a value range from zero to 100. A reading above 80 is considered an Overbought state and we should be watching for a "Sell" or "Lock" signal. A reading below 20 is considered an Oversold state and we should be watching for a "Buy" or "Float" signal.
There are two components of each Stochastic Oscillator, %K (Black line in chart) and %D (Red line in chart).
We get the Lock and Float signals by way of a "crossover". We are looking for the Black line to cross the Red line. But the crossover is only significant if it occurs when the lines are trading either above 80 (Overbought) or below 20 (Oversold).
A “Sell signal” or "Lock signal" is generated when the BLACK (%K) line crosses below the RED (%D) line, when both indicators are above 80.
A “Buy signal” or "Float signal" is generated when the BLACK (%K) line crosses above the RED (%D) line, when both are below the 20 level.
You can add a Stochastic chart below the regular Japanese Candlestick Chart by left clicking the Show Stochastic Chart checkbox and selecting Fast or Slow. Holding your mouse over a day on the chart will momentarily show a “pop-up” text box displaying the Date and values for %K and %D. Left clicking on a day will activate a pop-up window with the same information.
It is now very easy to see when mortgage bonds have currently moved into an overbought or oversold position. In conjunction with other market conditions and indicators, a "Stochastic crossover" may help us make better Lock or Float decisions.
   
     
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