The 'Last' Stochastic Technique

The Stochastic Oscillator is a momentum or price velocity indicator developed by George Lane.

To use the "Last" Stochastic Technique Calculator below, simply enter the High, Low Value and Last Done of the trend you want to examine, and click the "Calculate" button.

Additionally, Lane's methods specifically required that the K be smoothed twice with three-period simple moving averages. Two other calculations are then made:

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SK = three period simple moving average of K
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SD = three period simple moving average of SK

The classic interpretation of a stochastic can be complicated. The basic method is to buy when the SK is above the SD, and sell when the SK moves below the SD. However, the stochastic employs a fixed period-to-period calculation that can move about erratically as the earliest data point is dropped for the next day's calculation. Due to this instability and false signals generated, using a stochastic for entry and exit signals can incur a lot of unprofitable trades. To compensate for this inherent weakness, buy signals are generally reinforced when the crossover occurs in the 10-15% ranges, and sells in the 85-90% range.



Unfortunately, many techniques for using the stochastic oscillator can produce consistent losses over time. Some analysts have recommended smoothing the data further, or looking for a confirming overbought/oversold ratio prior to selling or buying. Most secondary filters such as overbought/oversold indicators degrade the performance of the stochastic in that one does not take advantage of major trends, getting whipsawed in and out.