# Stochastic Slow Strategy

#### Definition

The Stochastic Slow Strategy indicator is a specific type of price oscillator that is able to compare a security’s closing price over a certain range (“n”). It is typical for a trader to set the slow stochastic indicator with a range of 14, however, this can be decided upon by the trader, with proper analysis depending on their wants and needs.

#### Calculations

The Stochastic Slow Strategy indicator is calculated based on three major components.

- %K: Slow %K can be calculated using the following formula:

#### Definitions:

n = the range decided upon by the trader

Please note that to calculate the slow stochastic, replace “n” with the range you are monitoring (number of periods). The slow stochastic can be calculated on any time frame, although the default value is 14, as mentioned above.

- Once using the formula above, the trader should then take the three period Simple Moving Average (SMA) of this value in order to calculate the %K result for the Stochastic Slow Strategy.
- %D: Slow %D is equal to the three period SMA of Slow %K that the trader calculates in Step 2.

#### Takeaways

The Stochastic Slow Strategy ranges from 0-100. If a stock rallies, the stochastics therefore can not continue to make higher highs past the 100 mark. In addition, the indicator has boundaries and limits, just like any oscillator. With this in mind, traders understand that the indicator will never truly be able to mimic the price action of a security to a T. The main takeaway from this is that the oscillator and subsequent stochastics will continue to follow the trend in the primary direction, which is all it needs to do, technically speaking.

When analyzing or searching for oversold or overbought signals, traders should be aware of the indicator’s signal meaning. If a stock happens to cross over 80, many traders believe this is the right time to sell, and similarly, if the stock crosses under 20, it would seem like a good time to sell, right? Well, the indicator doesn’t necessarily point towards oversold and overbought levels, rather it advises traders to view the signals as trend strength or trend weakness. When determining what specific signals mean, keep this in mind, along with other methods of trend analysis.

#### What to look for

The Stochastic Slow Strategy focuses more on the highs and lows over a period, more so than closing prices. This is something that sets apart the oscillator from the Relative Strength Index (RSI) indicator. This can also be determined by the calculation formula; where the indicator specifically analyses period (n) highs and lows. For this reason, the Stochastic Slow Strategy indicator has smoother results and fluctuates more frequently between overbought and oversold signals.

#### Limitations

Although the indicator does a great job of projecting extreme levels in the market, it can be frustrating for users to receive constant signals and readings for overbought or oversold stock. Traders may at times get sick of the constant alerts and notifications, and may choose to abandon the indicator all together in order to manage their positions with less noise.

The indicator can be managed within its settings, but it is ultimately up to the individual trader to decide whether or not this indicator will be right for them and their trading goals.

#### Summary

The Stochastic Slow Strategy indicator is fantastic for identifying and determining primary trends within the market. The oscillator analyzes period highs and lows in order to track trends and deliver overbought and oversold signals to the trader. When combined with other indicators used for technical analysis or trend determination, a trader will be all the more set up for success.