Stocks & Commodities V. 30:10 (22-26): Buy & Sell Signals Using Stochastics by Chris Pratsch

Buy & Sell Signals Using Stochastics by Chris Pratsch

Combining moving averages with stochastics can generate reliable buy and sell signals. Find out how you can use them to identify attractive trading opportunities in stocks and ETFs.

Many technical analysis indicators are based on complex mathematics that only seasoned mathematicians can handle, and sometimes even they can fail. Unfortunately, higher mathematics are required to handle intricate statistical formulations needed for large volume trades.

The single trader, however, for whom much smaller stock volume is available, cannot participate in such large trades. These single traders — and I consider myself to be part of such a group — can only react to market moves that, with or without influences from outside forces, gyrate in irregular cycles.

WHICH INDICATORS DO YOU USE?

The task here is to use technical indicators that describe price moves and have maximum forecasting power. Fortunately, quite a number of useful and valid indicators are available. They are simple to use, mathematically correct, and often are well displayed and easy to handle by normal trading platforms.

I will discuss using moving averages and stochastics in a number of combinations. You will be able to see how valuable buy & sell signals can be established and, when followed, form a basis for attractive trading activities of stocks and exchange traded funds (ETFs) by single traders.

MOVING AVERAGES

My basic demand for an indicator is for it to describe and signal price trends. Trend following is a key condition for successful trading. For this purpose, moving averages are quite useful; they are simple to select, simple to understand, and simple to define the current trend.