V.10:12 (501-506): Multiple-Length Stochastics by Stuart Meibuhr
Product Description
Multiple-Length Stochastics by Stuart Meibuhr
Plotting different indicators together and combining their analyses is a popular analytical method for timing trades. But how about using one indicator and varying its parameters? Stuart Meibuhr takes stochastics and varies the length of the lookback for trades of different time frames.
The popular concept "if one is good, two are better" has often been used by technicians in the selection of indicators in the belief that combining the signals of different indicators is a more reliable strategy than following just one. But this idea has rarely been applied to the use of multiple-length indicators, with the exception of perhaps multiple-length moving averages. Few other indicators have been studied for their value as multiple-length trading tools. In a recent STOCKS & COMMODITIES article, Barbara Star showed that the crossover of the seven-day and the 14-day commodity channel index (CCI, short and intermediate term) could serve as an early warning system forewarning of impending price reversal for live cattle. Star sometimes also used the 28-day CCI (long term) and even suggested that the three CCI plots be overlaid, with buying or selling then occurring when all the plots turn at the same time above or below the 100 level.
In contrast, Martin Pring used multiple-length rate of change (ROC) indicators on monthly and daily price data for the Standard & Poor's 500 index and other markets. He showed that when three ROC plots peak or bottom together, significant moves occur in the S&P 500. With monthly data, he used six-, 12- and 24-month ROC curves that were smoothed by six- and nine-month moving averages. For daily data, he used 10-, 15- and 30-day ROC curves.
Walter Bressert, in his book The Power of Oscillator/Cycle Combinations, calculated the relative strength index (RSI) indicator for different lengths using the Fibonacci series up to 21 on daily Treasury bond data. When all the RSI curves peaked above the 70 level at the same time, the T-bond price would also tend to make a significant peak. A similar situation existed for lows when the RSI curves bottomed below the 30 line.
Plotting different indicators together and combining their analyses is a popular analytical method for timing trades. But how about using one indicator and varying its parameters? Stuart Meibuhr takes stochastics and varies the length of the lookback for trades of different time frames.
The popular concept "if one is good, two are better" has often been used by technicians in the selection of indicators in the belief that combining the signals of different indicators is a more reliable strategy than following just one. But this idea has rarely been applied to the use of multiple-length indicators, with the exception of perhaps multiple-length moving averages. Few other indicators have been studied for their value as multiple-length trading tools. In a recent STOCKS & COMMODITIES article, Barbara Star showed that the crossover of the seven-day and the 14-day commodity channel index (CCI, short and intermediate term) could serve as an early warning system forewarning of impending price reversal for live cattle. Star sometimes also used the 28-day CCI (long term) and even suggested that the three CCI plots be overlaid, with buying or selling then occurring when all the plots turn at the same time above or below the 100 level.
In contrast, Martin Pring used multiple-length rate of change (ROC) indicators on monthly and daily price data for the Standard & Poor's 500 index and other markets. He showed that when three ROC plots peak or bottom together, significant moves occur in the S&P 500. With monthly data, he used six-, 12- and 24-month ROC curves that were smoothed by six- and nine-month moving averages. For daily data, he used 10-, 15- and 30-day ROC curves.
Walter Bressert, in his book The Power of Oscillator/Cycle Combinations, calculated the relative strength index (RSI) indicator for different lengths using the Fibonacci series up to 21 on daily Treasury bond data. When all the RSI curves peaked above the 70 level at the same time, the T-bond price would also tend to make a significant peak. A similar situation existed for lows when the RSI curves bottomed below the 30 line.
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