Stochastics

Raw Stochastics = 100 * (Recent Close - Low(n)) / (High(n) - Low(n))
%K = 3-period moving average of Raw Stochastics
%D = 3-periods moving average of %k

Where n is the number of periods used in the calculation.

In the table above, you can monitor Stochastics for several US Indexes and Exchanges using 9-day, 14-day, and 20-day periods. In the same table, we also show the 1/10 PVO (Percentage Volume Oscillator)

How to Use Stochastics and our Volume Indicators:

1. Stochastics shows how far the most recent close is away from the lowest low and highest high (in the calculated period):
   • If the 20-day Stochastics is greater than 80%, the security is close to a 20-day high;
   • If the 20-day Stochastics is below 20%, that security is close to a 20-day low.
2. The 1/9 PVO (Percentage Volume Oscillator) shows how high recent daily volume production is to the average volume generation over the past 9 trading days.
   • If the 1/9 PVO value is greater than 1.15, this indicates that we have a volume surge that exceeds the average volume output over the past 9 trading days by 15%.
3. The market will not always reverse when Stochastics exceeds 80% (or when it trades below 20%), just as the market will not always reverse when we see volume surges. However, the probability of a reversal is much higher when volume surges occur close to index highs or lows (as indicated by the Stochastics).
   • As a rule, Volume Surges (indicated by a high PVO) that appear during an index advance - when combined with closes near the highs (i.e., Stochastics > 80%) - indicate potential downside reversals.
   • As a rule, Volume Surges (indicated by a high PVO) that appear during an index decline - when combined with closes near the lows (i.e., Stochastics < 20%) - indicate potential upside reversals.
   • Ignore Volume Surges that appear when Stochastics exceeds 20% and is below 80%. Market reactions could be short-lived.