I received quite a few emails asking me what the heck I was looking at on the Triple Stochastic-HL indicator. Here’s a screen shot of today’s ES action with a few key areas highlighted. Essentially, the high probability trades exist when all three stochastics are at an extreme and a divergence exists. As you can see, the long term stochastic (the one that changes colors) has a slow oscillation between the overbought and oversold levels. The mid-period (yellow) stochastic is slightly more responsive but has more false signals. Lastly the short-period stochastic (green) is extremely responsive to price action and is the first indication of a directional change. When all three are bunched up at the top or bottom of the indicator, I start looking for a divergence in the mid-period or short-period stochastics. With divergence present, a high probability trade exists when the lines begin to splay out and exit the overbought or oversold region. I have highlighted a few of these areas as well as the divergence. Like any trading technique, there are times when it fails and I have highlighted one such area in red.
Triple Stochastic Use
Thanks so much for the explaination. It’s enough to get the basics and get one started. Please continue this forward with each new one you create and perhaps work backwards and do one or two a week for the inicators that lack a technique synopsys.
Keep up the great work!
Will do!
Thanks for the detail on this indicator. Before reading your explanation, I was looking at possible signals being generated when all three lines are in the extreme position and the fast line crosses back over the line for the first time. This seemed to provide fairly good signals on several hourly charts I was looking at of both futures and equities. I was unable to backtest it because I don’t have the skills to convert it to a strategy, but it looks like it could provide some decent setups.
A very interesting tool.
For currencies, however, the settings need to be fine-tuned a bit — and this really needs to be used with other indicators — the RSI in particular. I do like this with an RSI/Exponential and the MACD HLC that ThinkScripter wrote and has here somewhere — the 3 of those together, when properly fine-tuned, seem to really work well together with some of the more active currency pairs.
Currencies, of course, have a much different feel than futures and equities — that’s no secret — and they will also occasionally make sudden price movements that are almost impossible to predict. A single off-hand comment from a political figure can move a currency by an extreme degree — I don’t think any indicator can fully capture that kind of thing.
Still, it does appear that this has some real value with the more actively-traded currency crossings.