How to use Stochastics

[IFeelFree]

Stock/bond/currency/etc. prices are essentially random walks, so according to statistics, there's very little information to be gained by applying any kind of technical analysis to a single price history. I deal with this problem by trading a cointegrated PORTFOLIO of stock/bond/commodity ETFs that has been carefully assembled to reduce the random component and increase the deterministic component. This is known as statistical arbitrage.

 

[lazydave]

Lane's Stochastics PDF Link

For those wanting to know how (you are supposed) to trade with stochastics, here is a link to a PDF of an article by George Lane the originator of stochastics.

Lane's Stochastics PDF


To summarize - the main (he says only) signal is a divergence between the %D line and price but there are lots of nuances - well worth a read.