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Fast Stochastic (REI Substitute)
Location: With the Trend
has been written about stochastic and how to trade them.
In this case, we are interested in having an indicator duplicate the
action of the DeMark REI as much as possible and to be reliable.
I am not interested in where the indicator turns over or crosses over.
I want the entry into buy and sell zones to be as accurate as possible
and let the price action control the trade entry using the same techniques as
The values are 5, 2, 2; overbought is 60 and oversold in
35. Midpoint is 48.
Additionally, I am only interested in the K line (slow
line), not the D line (fast line).
So if you can blend the D line into the background, all
the better. I would use this
arrangement only in the direction of the Moving Average.
Personally, I would never trade against the Moving Average with this.
As in the Range Expansion Index, there are two types of the entries.
They are the Market-On-Bar-Close and Buy/Sell Stop Method.
Refer to the section on the REI for the specifics.
We are looking
to take the trade in the direction of the Moving Average (30WMA).
With price bars and Moving Average going in the same
direction, the stochastic will reach an extreme zone.
On any retracement or consolidation, the indicator will pull back in a
direction opposite the Moving Average.
Once the indicator enters the zone to initiate a trade in the direction of the
Moving Average, we initiate the entry methods outlined in the earlier REI
This would be a conservative entry.
There is a school of thought on the use of stochastics that
enables a more aggressive entry.
One can get on moves that the conservative entry misses but will have some
additional failures as well. In a
rapidly trending market, this aggressive entry may be the only one you get due
to the retracement of only a bar or two.
This setup begins when the indicator has retraced to midpoint (48) between the
values of 60 (overbought) and 35 (oversold).
At this point, the aggressive zone of opportunity has been entered.
The entry methods are the same as in the conservative.
To illustrate how this works the following charts will show
both the REI and the fast Stochastic. The REI will be below the fast stochastic