I’m 24 and a beginner invester and I’m still trying to develop my own investing strategy. From analyzing stock charts I have noticed that whenever the slow stochastics of a stock bottoms out, there is generally a rebound or rise in the price of the stock as shown here:
http://i2.photobucket.com/albums/y26/CBasedLifeform/BottomedoutStochasticsvsdecreasingM.jpg
I was thinking I could grow my investment that way. That is, simply look for stocks whose slow stochastics have bottomed out and put my money into those stock and sell once the stochastics have reached near 80. But I do find that in some instances, the price does not go up, as shown here:
http://i2.photobucket.com/albums/y26/CBasedLifeform/BottomedoutStochasticsvsdecreasi-1.jpg
So I’m wondering how do I know whether or not the price will go up? Is there an additional indicator that I need to use to tell me this?
jubliekrimlin 7:04 pm on October 29, 2009
Watch the MACD in conjunction with the slow stochastics. If the MACD is above the zero line, you can be sure that the stock will go up (for a short time at least). If the MACD is below the zero line and is looking as if it is continuing its decline then don’t buy the stock. You could still consider buying the stock if MACD is in the negative. Just make sure that it is going up and that the MACD histogram is in the positive or is about to cross above the zero line.
Rams_fan 7:04 pm on October 29, 2009
Sorry I wished I could help you
elrioroberto 7:04 pm on October 29, 2009
observe your surrounding country or big player……
jassemej 7:04 pm on October 29, 2009
sorry can’t help you with prediction…. if anyone out there that could tell you how then they must be billionairs by now…
Spear 7:04 pm on October 29, 2009
I’m just 18. change your strategy.
if your looking for risk free – low coupon gitls.
For medium risk investment – unit trust.
try using technical analysis. Fundamanetal analysis is used by fund managers and evaluators. By using technical analysis and analyszing stock patterns you can try to beat the market.
If you want to hedge risk on your shares, buy call and put options. Call options if you thing the share price will rise. Put options if you think the share price will fall.
jf 7:04 pm on October 29, 2009
you need to use fundamental analysis such as revenue, growth, p/e,cash flow,balance sheet.
If you use fundamental with the technical analysis you can make a lot of money.
SWH 7:04 pm on October 29, 2009
No one indicator will tell you if the stock is going to increase or not. A stochastic by itself could stay oversold for some time before buyers come back in to start buying shares.
On your chart, I see you also have plotted MACD. I like the 12,26,6 MACD with a 14,3,3 Stochastic, although there’s nothing magic about these numbers. Try using a buy signal when the MACD crosses above 0 in conjuction with the Stochastic crossing above the MACD within a 5 day period. This is a pretty good confirmation, although not fool proof.
Just make sure your stock is fundamentally sound. Have you heard of CANSLIM and William Oneill? Set up your watchlist of 20-40 stocks that have good fundies and watch the MACD/Stochastics (AND news and earnings reports) for good entry points.
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huskie 7:04 pm on October 29, 2009
The Stochastic by itself is not reliable enough. As someone else pointed out, it can stay in the oversold territority or worse, give a false buy signal. Here’s an example:
Daily: http://stockcharts.com/h-sc/ui?s=NAK&p=D&b=5&g=0&id=p27394238077&a=101150628&listNum=25
There are two things you need to do.
First – you need to correlate two time frames. I used a daily chart along with a weekly chart. Pick your favorite indicator (mine is MACD) and make sure both time frames agree. For example, the above link was a daily chart for NAK and from the Stochastic, you might think it is ready to turn up. Now take a look at the weekly chart:
http://stockcharts.com/h-sc/ui?s=NAK&p=W&b=5&g=0&id=p96037639039&a=101152401&listNum=1
Stochastic just gave a sell signal. So while you may get a 2-3 day bump based on the daily Stochastics, it’s very likely to fail.
Second – You should confirm one indicator with at least one other, preferably more. Stochastics + MACD (+ RSI).
Item 1 (multiple time frames) is the absolute most important thing you have to do. Item 2 is recommended but not as important as item 1. I trade mainly on MACD using two time frames and check Stochastic and RSI just to make sure they don’t conflict. They may not have to agree completely but they can’t being saying the opposite of MACD.
Stockcharts has a stock school which is quite good and I suggest you go through the whole thing (it’s free) then come up with the indicators you want to use and backtest them to get a feel for their reliability.
http://stockcharts.com/school/doku.php?id=chart_school
TSG S 7:04 pm on October 29, 2009
You should join this group, it is for serious investors. We do every thing from penny stocks, to daytrading, to stocks not classified as penny’s Group Add; http://groups.yahoo.com/group/tsgstockpickers
Hope to see you in the group
Robert
TSG Stock Club
Bear 7:04 pm on October 29, 2009
There are many indicators and people use the indicators as part of their system. These systems have usually been tested in countless trades to see what type of success they offer when used together.
It makes no sense to invent your own system..it is far better to see a successful one in action and use it.