Stochastics is a technical market analysis tool used to predict the price direction of a stock based on past behavior. It is a complex mathematical method that attempts to find patterns among external factors that can obscure market behavior. Different interpretations of stochastic data exist, and charting services can display the resulting chart, but it is important to know which method is used. Stochastics is considered an obscure tool, and finding a broker who understands it can be challenging.
Stochastics is a technical market analysis tool developed by Dr. George Lane. Technical market analysis is an investment method that attempts to “time the market” or predict the direction of the market based on past behavior. Stochastic is a mathematical method used by technical analysts to help predict the price direction of a particular stock.
The stochastic is based on the fact that the market is made up of people and that any large social group as a whole will behave in a somewhat predictable way. Since the market is also influenced by external factors, such as current news events and random events, patterns can be obscured by this “noise.” The stochastic is a complex mathematical method to try to find patterns among this “noise”.
There are different methods used to calculate stochastic data, and there are numerous interpretations given to these data. Proponents of the various interpretations of market stochastics argue that their particular approach is more valid. Since no one seems to be able to make a conclusive case, many technical investors using stochastics combine more than one interpretation and use the combined result as the basis for their investment decisions.
To make things easier, many charting services calculate stochastic data and display the resulting chart. The interpretation of the graphical data is left to the user. There are two popular methods for calculating stochastic, a slow stochastic and a fast stochastic method. It is important to know which one is used by any particular charting service. Unfortunately, this information is not always easily displayed. You may need to write to the publisher and request this data.
The stochastic is possibly the most arcane and obscure of the various tools a market timing trader might use. Finding a broker who understands stochastics can be challenging. Many financial advisers also believe that it is better not to pursue this challenge.
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