How To Profit From Trading Stochastics, Part 1
Stochastics are one of the most popular indicators in trading. They are used to trade:
They are a feature on all charting platforms. They are ubiqutious.
This is the first in a series of articles on how to trade stochastics profitably. You will learn hard core techniques for making money. You will learn the basics of stochastics then progress all the way to advanced techniques.
Look for perhaps two sections per week.
However, you have to be a premium member to get this series. Hey, it's only $5 a month for Premium Membership so you should subscribe right away for this series plus all the other extra features. Of course, Super Premium members will receive it free as well.
This first one is free for everyone.
Why Consider Using Stochastics To Trade
It works...if done correctly.
In this series of articles, I will be:
- Giving you the basics of stochastics
- Showing you how everone gets it wrong and loses money
- I will show you these profitable techniques:
- Stochastic Elbow
- Stochastic Divergence
- Stochastic Trend Following
- And more!
Yes, these techniques are great. All three are profitable. But the Stochastic Divergence is incredibly profitable and is one of my most profitable techniques in my trading toolbox. In addition, Stochastics can help keep you out of bad trades!
Stochastics is one of the most powerful indicators in the trader's toolbox.
History Of Stochastics
There is some diagreement on the origin of stochastics. Generally, it is credited to George Lane but my friends Larry Williams and Tom De Mark say it was a gentleman named Ralph Dystant.
The argument for Dystant is that both Larry and Tom have been involved in trading stocks and futures since the 1960s and developing indicators for as long. If anybody would know who invented it, they would be the ones. But I only have their word for it.
On the other hand, most people believe that George Lane invented it. For now, I will go with this answer.
I actually learned stochastics from George Lane which has since gone to the big trading pit in the sky. But his wife kept teaching it after George's demise though I believe she has stopped now.
Here's what George told me about the origin of stochastics.
George was running a small brokerage house in the late 1940s and had a seat on the MidAmerica Exchange (No longer in existence. Formerly the Chicago Open Board of Exchange, formerly Pudd's Exchange.) He says that he originated stochastics then. Very advanced!
As you will see, there are two lines that make up the stochastic indicator, %K and %D. I asked George where did the names come from. Here's his story.
He was down on the floor of the MidAmerica Exchange and he had two runners (low level job usually filled by young teenage boys who would run around the flow as messengers.) working for him. They were both of Polish descent. Don't forget that Chicago is the second biggest Polish city!
But, being weird Polish names, there was no way that George could pronounce the names so he just called them K and D. He named %K and %D after the two Polish kids!
History Of The Name Stochastics
The word "stochastics" is actually about a process in mathematics. But the mathematical stochastics has nothing to do with the trading indicator stochastics. This has led to a lot of confusion for mathematicians irritated about the name and for people trying to search the Internet for info on stochastics.
So, of course, I asked George about the name.
He said he never had a name for it until one of the very early computer trading terminals which had price chart asked George if they could use the indicator. He said yes.
But the indicator had no name! George had no name for it so he asked the terminal company for a suggestion and they were the ones that named it stochastics! So there you have it!
In our next article, I will show you the basics of stochastics including:
- What stochastic really shows
- The math behind stochastic
- The basic interpretation of stochastics
In future articles I will show you what everybody gets wrong and loses money from as well as a series of profitable techniques using stochastic.
Time for a deep dive into making money trading stochastics!
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