Oscillating Indicators - Slow Stochastic

The slow stochastic is an oscillating indicator. Developed by George Lane , it can alert you to a shift of investor sentiment from bullish to bearish or vice versa. The slow stochastic can also alert you to when traders are becoming over-extended, which usually results in a trend reversal.

The slow stochastic is usually plotted below the price movement on a chart.

The following three aspects of the slow stochastic are worth your attention:

  • How the Slow Stochastic is Constructed
  • Slow Stochastic Trading Signals
  • Strengths of the Slow Stochastic

How the Slow Stochastic is Constructed


The slow stochastic consists of two lines–%K and %D – that oscillate in a range between 0 and 100.

  • %K reflects the most recent closing price of a share or CFD in relation to the range of historical closing prices.
  • %D is a moving average of %K.

If the closing price is near to the peak of historical closing prices, then the %K line (followed by the %D line) will rise.
If the closing price is near the bottom of the range of historical closing prices, the %K line (followed by the %D line) will move lower (see Figure 7 ).

Slow Stochastic Trading Signal

  • The slow stochastic produces trading signals as it enters its upper and lower reversal zones.
  • The upper reversal zone is the area of the indicator that is above 80. When %K exceeds 80, the share or CFD may be overbought and could suffer a reversal soon.
  • The lower reversal zone is the area of the indicator that is below 20. When %K is below 20, the share or CFD may be oversold and could suffer a reversal soon.

Entry signal – when %K dips below 80, you can sell knowing that investor sentiment is shifting from being bullish to bearish. When %K rises above 20, you can buy knowing that investor sentiment is shifting from being bearish to bullish.

Exit signal – when %K reverses direction after having risen above 20 or fallen below 80, and crosses over %D, you can sell knowing that investor sentiment is changing direction again.


Strengths of the Slow Stochastic

  • It helps you spot when investor sentiment changes
  • It helps you confirm the strength of current trends

Weaknesses of the Slow Stochastic

  • It lags behind the market because the data used to calculate the slow stochastic is historic and doesn’t necessarily have any bearing on the future.
  • It can provide false signals.

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