- Type: momentum oscillator
- Data requirement: daily closes for individual stock
- Inputs
- no. of periods (n) to use (suggested default is 14)
- previous average gain
- previous average loss
- current gain
- current loss
- Formulas
- Gain = close(k) – close(k-1), when close(k) is higher than close(k-1), where k is the trading day for calculation
- Loss = close(k-1) – close(k), when close(k) is lower than close(k-1), where k is the trading day for calculation
- Initial
- First Average Gain = Sum of Gains over the past n periods / n
- First Average Loss = Sum of Losses over the past n periods / n
- Subsequent
-
Average Gain = [(Previous Average Gain) x (n-1) + Current Gain] / n
- Average Loss = [(Previous Average Loss) x (n-1) + Current Gain] / n
-
- RS = Average Gain / Average Loss
- RSI = 100 – 100 / (1 + RS)
- Signals
- Oversold: below 30
- Overbought: above 70
- Divergences
- Failure swings
- Centerline crossovers
- General trend
- c.f. http://stockcharts.com/school/doku.php?id=chart_school:technical_indicators:relative_strength_in
momentum
Stock Technical Analysis – Stochastic Oscillator
Finance and Economy, Technical- Type: momentum oscillator
- Data requirement: daily high-low-closes for individual stock
- Inputs
- look back period: no. of periods (n) to use (suggested default is 14)
- smoothing period: no. of periods (m) for smoothing %K (suggested default is 3)
- moving average period: no. of periods (l) for SMA (suggested default is 3)
- Formulas
- Fast Stochastic (n=14, m=1, l=3)
- Fast %K = (Current Close – Lowest Low in past n periods) / (Highest High in past n periods – Lowest Low in past n periods) * 100
- Fast %D = 3-day SMA for Fast %K
- Slow Stochastic (n=14, m=3, l=3)
- Slow %K = 3-day smoothed Fast %K
- Slow %D = 3-day SMA for Slow %K
- Full Stochastic (n, m, l being arbitrary)
- Full %K = m-day smoothed Fast %K
- Full %D = l-day SMA for Full %D
- Fast Stochastic (n=14, m=1, l=3)
- Signals
- Oversold: below 20
- It is often to observe frequent oversold readings in bearish trend. So look for occasional overbought readings in such a bearish trend instead.
- Overbought: above 80
- It is often to observe frequent overbought readings in bullish trend. So look for occasional oversold readings in such a bullish trend instead.
- Reversal: stay in oversold / overbought zone and then leave the zone.
- Divergences are not confirmation signals. Could be confirmed by support / resistance breaks.
- 3-step confirmation pattern
- signal lines crossover (%K crossing %D) or zone crossover (moving above 20 from oversold zone or moving below 80 from overbought zone)
- centerline (50) crossover
- resistance / support break in price chart
- Oversold: below 20
- c.f. http://stockcharts.com/school/doku.php?id=chart_school:technical_indicators:stochastic_oscillato