|  DEC 1994

Trading Markets With Stochastics by Louis M. Lupo

Trading Markets With Stochastics by Louis M. Lupo There are many systems for trading these days, some of them good, some not. Here's a reliable pattern for trading markets using stochastic. Of the computerized trading systems and discretionary systems I have traded and developed, some needed refinement, some needed reworking, and some were simply cannonfodder. However, one system that has continued to perform in every hostile trading environment imaginable is the stochastic pattern recognition system. Let me briefly discuss the theory behind the system and describe the parameters of one particularly reliable stochastic pattern. I will then apply the parameters in a simple mechanical fashion. STOCHASTIC PATTERN RECOGNITION THEORY By its very design, the stochastic is a momentum indicator. All stochastics referred to here will be a 14-bar close, slow stochastic with a three-bar smoothing. The stochastic, as opposed to other momentum oscillators, measures the location of the most recent market price in relation to the highest and lowest prices within the last 14 bars, not the price 14 bars earlier.

by Louis M. Lupo