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> The stochastic does nothing more than marks where the close is in relation
> to the highest high and lowest low of the last N bars.
Yep.
> How does this
> indicator derived from price action have an impact on the prices?
Beats me. :-)
> On another note, let's say that the highest high of the last 10 bars is 150
> with the lowest low as 50, with the current price/close as 55. Let's say
> that on the next bar, the highest high is now 130 with the lowest low still
> at 50 and the close remains the same. The stochastic, previously calculated
> as 5%, is now 6.25%. Even though the close remains the same, the stochastic
> spikes up. Would you initiate a trade even though the prices (close) hasn't
> even move?
Actually, that could be valuable information if you have the stoch tuned
to the current dominant cycle, as Ira suggests. Of course, the catch
with any cycle detector is knowing how long that cycle actually is
before its too late to do anything about it. Setting the lookback of the
stoch is critical. I suppose you could use astrology <g> to set the
lookback for the stoch but, as we have recently seen, that may have an
error of +/- 9 days so it may not be very reliable as an input to the
stoch.
--
Dennis
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