Slow Stochastic

Both the Fast Stochastic and Slow Stochastic oscillators are used by market technicians as a timing indicator for signals of market reversal. The Fast Stochastic will provide more signals than the Slow Stochastic, although some analysts prefer the Slow Stochastic, believing it is less prone to whipsaws.

The Stochastic oscillator compares where a security's price has closed relative to its price range over a specifically identified period of time. George Lane, who developed this indicator, theorized that in an upwardly-trending market, prices tend to close near their high, and in a downwardly-trending market, prices tend to close near their low. Further, as an upward trend matures, price tends to close further away from its high, and as a downward trend matures, price tends to close away from its low. Lane's theory is that these are the conditions which indicate the beginning of a trend reversal.

The Stochastic indicator is plotted as two lines, the %D line and the %K line, with values ranging from 0 to 100. Readings above 80 are strong and could indicate that price is closing near its high. Readings below 20 are strong and could indicate that price is closing near its low.

For an excellent discussion of the Stochastic indicators, please refer to John Murphy's Technical Analysis of the Futures Markets (New York: New York Institute of Finance, 1986).