Applying Full Stochastics to Price Patterns
Full Stochastics is an oscillator that traders use to determine when a stock is overbought and oversold. The Full Stochastics oscillates between the values of 0 and 100. Generally 80 and higher is considered overbought, while 20 and lower is considered oversold. (See Figure 11.1)
Figure 11.1
There are many different calculations for Stochastics. For the most part, the indicator is displayed with two lines: a fast and slow Stochastic. The fast and slow indicators are two separate calculations. The Full Stochastics smoothes both calculations and results in smoother signals, as the name suggests.
Figure 11.2
When the two lines of the indicator cross as shown in Figure 11.2 it generates a buy or sell signal. The fast line (black) crosses above and below the slow line (red), generating buy and sell signals, respectively. A cross in the black line above the red line generates a buy signal. A cross in the black line below the red line generates a sell signal.