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Fast Stochastics versus Slow Stochastics

Fast Stochastics versus Slow Stochastics

Richard Krivo, Trading Instructor

Below is a historical Daily chart with both a Slow and Fast Stochastic indicator on it…Fast Stochastics above and Slow Stochastics below.In principle, the trading rules are the same...a cross above 80 with a close below 80 indicates that momentum on the pair is the downside. Conversely, a cross below 20 with a close above 20 indicates bullish momentum.We would advocate the use of the Slow Stochastics from the standpoint that it is more "readable" since it does not react as dramatically to each price action movement, be it major or minor, that the pair may have. As can be seen on the chart below, Fast Stochastics is much more sensitive to price action and, as such, is often used by shorter term traders.Keep in mind that oscillators such as Stochastics will not “predict” trends. Rather they indicate momentum based on price action. A trader will identify the trend on the Daily chart and then use an oscillator like Stochastics to time their entry in the direction of the trend on the Daily chart when momentum is shown as being in that direction.So if the daily trend on a pair is bearish, a trader using Stochastics to enter the trade, would enter a short position when Stochastics had been above 80 and then closed below 80.

Fast_Stochastics_versus_Slow_Stochastics_body_post-day-chart-2-15-09.png, Fast Stochastics versus Slow Stochastics

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.