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STOCHASTICS

Calculating Stochastics

06/05/01 02:40:36 PM
by Dennis D. Peterson

This article is reprinted from Stocks & Commodities V. 10:12 (501-506) as a supplement to Dennis Peterson's April 27, 2001 article "Stochastics." Here's an example on how to calculate stochastics using Microsoft Excel.

Security:   N/A
Position:   N/A

The stochastics indicator calculates the relative level of today's closing price to the trading range selected by the user. Two lines are calculated, %K, which is:

%K=100((Current Close-Lowest Lown) / (Highest Highn- Lowest Lown))

This is the raw value of the stochastics indicator. The n period is the number of lookback days selected by the user, such as 10 days.



%D is a smoothed %K. The above example smoothes the %K by calculating the ratio of the summed last three periods of the numerator of %K to the summed last three periods of the denominator of %K.

In Article Figure 1, a 10-period %K and a three-period %D are presented. Column E is the highest high in the last 10 days. The formula for cell E24 is:
=MAX(B15:B24)

Column F is the lowest low in the last 10 days. The formula for cell for F24 is:
=MIN(C15:C24)

The numerator for %K is Column G. The formula for cell for G24 is:
=D24 - F24


Article Figure 1: Calculating stochastics using Excel.
Graphic provided by: Microsoft Excel.
 
The denominator for %K is Column H. The formula for cell for H24 is:
=E24 - F24

%K is calculated in column I. The formula for cell I24 is:
=100*(G24/H24)

Finally, %D is calculated in column J. The formula for J24 is:
=100*(SUM(G22:G24)/SUM(H22:H24))

The slow version of the stochastics indicator takes these steps to calculate the value of %D and then relabels %D as slow %K, then smoothes the slow %K with a three-day moving average for the %D.

-- Written for Stocks & Commodities magazine by Thom Hartle

This article is reprinted from Stocks & Commodities V. 10:12 (501-506) as a supplement to Dennis Peterson's April 27, 2001 article "Stochastics."




Dennis D. Peterson

Market index trading on a daily basis.

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Comments

Date: 10/15/01Rank: 1Comment: I need simplicity in my life not complexity to judge whether or not to consider purchase of a stock.At age 70 I do not need all this mathmatical, algebraic etc,etc, computation to work with. I just need a few simple facts /or comments as to why a certain stock should be considerd.This is great for the college,M.B.A.,econ majors but not this lady. Thank you very much.
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