|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:
Column F is the lowest low in the last 10 days. The formula for cell for F24 is:
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:
Finally, %D is calculated in column J. The formula for J24 is:
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."
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