Bill Blau's formulas

["Walter Lake" <wlake@xxxxxxxxx>]

Hi Ton

Here's chapter 3 - page 25+

Lane's Stochastic
Unsmoothed (fast) stochastic
k=100*(close-LL(q)) / (HH(q)-LL(q))
q = {lookback period}

HH(q) = highest high in last q bars
LL(q) = lowest low in last q bars
one form of slow stochastic = 3 day SMA smoothing
d% = 100*(SMA(3) of (close-LL(q)) / (SMA(3) of (HH(q)-LL(q))

double (EMA) smoothed stochastic
DS(q,r,s) = 100*(EMA(EMA(close-LL(q),r),s)) / (EMA(EMA(HH(q)-LL(q),r),s))


Stochastic Momentum = SM {distance of close - midpoint}
SM(q) = close - 0.5 * (HH(q) + LL(q))

Stochastic Momentum Index = SMI
SMI = 100*(EMA(EMA(SM(q),r),s)) / (0.5*EMA(EMA(HH(q)-LL(q),r),s))
threshholds set at +100 & -100

basic configuration
q {lookback} = 13 days
EMA smoothing of 25 days

Signal line is the EMA of SMI(q,r,s)
set in the range of 3 to 12 bars

Double smoothing of SMI(q,r,s) is obtained by using any two of q,r,s
parameters while holding the remaining parameter fixed.

Stochastic Momentum Index = SMI(13,25,1)
plus signal line
thresholds set at +40 & -40

cumulative sum of Stoachastic Momentum with q = 20 day lookback is similiar
to 20 day EMA of close but ineresting

Stochastic momentum for large intervals = SMI(300,5,1)
first smoothing for q = 300
second EMA smoothing of 5 days
only lag was due to r day EMA

shorter time periods produce divergences
compare 20 day stochastic momentum with 5 day smoothing
with stochastic momentum index  SMI(20,5,1)
disparity is due to 5 day EMA for SMI
Vs 3 day SMA for slow stochastic

EMA smoothing can be increased from 5 to 20 days
SMI(20,20,1)
trends as prices trend

SMI can be increased to SMI(20,60,1) to define trend in prices
with slow stochastic used as entry (exit) vehicle

Long trend SMI = SMI(20,150,1)
corrects any anomalities by increasing r from 20 to 150
smooth and with very little lag

- 0 -

will continue later with rest of chapter
2 day and 1 day stochastics

Best regards

Walter