It’s one of those indicators that “smooth the edges” – they need a bit more to provide a buy or sell signal. The parameters that build it are designed not to react to sharp moves in both directions (which are often followed by pullbacks) and looks at a broader picture to come into an oversold or overbought position.
As always David demonstrates it in a real market where imperfect conditions abound and put the theory to the test. You can quite clearly see some of the risks and pitfalls of using it but also the situations in which it possibly ranks among the best indicators around.
Two of the factors that you’ll see discussed in detail.
The first is support and resistance levels and how the slow stochastic can be combined with interpreting them. The second is bearish and bullish divergences in the stochastic itself, pointing at potential false signals and larger trends that might become a trap if unseen and an opportunity if identified on time.
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