Trend Reversal w/ Stochastics

[Leth]

Here is a simple Fast Stochastics system for trading trends on a daily chart...

Optimal settings for longer term trading should be kept at a period of atleast 20 days or more; keeping transaction costs at a minimum.
The stochastic is often used to signal overbought levels above 80, where it is close to the top of its N-day range, and oversold levels below 20, where it is close to the bottom of its N-day range. Even though the concepts of overbought and oversold are questionable when it comes to trend following, a trend following trader can use the stochastic indicator in a manner similar to bands, channels, and moving averages.
As you can see from the chart below, a trailing stop on the stochastic indicator has been set at 50.



stochastic.jpg



(click on thumbnail and maximze)


Rules:

Go Long the day after the Stochastic crosses above the 80 line
Go Short the day after the Stochastic crosses below the 20 line
Cut Losses after the Stochastic crosses above/below the 50 line
Check your positions EOD only


Don't forget that when trading individual stocks, Dow Theory may apply. As with all trading systems, strict money management rules must apply. See the following thread on how to build a more complete trading system:

http://www.trading-lab.com/forums/bu...tems-t196.html



*Disclaimer: Your personal choice in trading methods should be based on your evaluation and understanding of risk. The author/poster of this article is not liable for any personal losses accrued as a result of the above system(s) utilization.