Education: Stochastic Momentum

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Stochastic Momentum is a technical analysis tool that I have discussed and utilized for many news.  Below I have put together multiple and detailed examples of this very powerful technique.  

Symmetry is a very powerful tool in technical analysis that Steve and I have discussed and utilized for years now.  Below I have put together multiple and very detailed examples of this very powerful technique.  

I generally use this concept on intra day charts, however the setup works universally across any time frame.

Long Stochastic Momentum:

The stock, future, index is in a strong uptrend and this setup provides a way to buy a fairly shawllow pullback within that strong up trend.

1. A slow 60 Length Stochastic is trending over 80%, on a price pullback this Stochastic length may pullback close to the 80% level, but remains above it

2. At the same time a faster Stochastic, such as a 10 length, becomes oversold (while the much slower 60 length Stochastic still remains above 80%).

3. One does not simply go long when this happens, a trigger is needed.  Generally I'll place a buy stop at 1 penny or tick (on futures) above a doji candlestick, or at 50% of a solid down candle. 

Short Stochastic Momentum:

The reverse is true, the stock/future/index is in a strong downtrend and this setup provides a way to short an oversold bounce within that downtrend.

1. A slow 60 Length Stochastic is trending below 80%, on a price pullback this Stochastic length may pullback close to the 20% level, but remains below it

2. At the same time a faster Stochastic, such as a 10 length, becomes overbought (while the much slower 60 length Stochastic still remains below 20%).

3. One does not simply go short when this happens, a trigger is needed.  Generally I'll place a sell stop at 1 penny or tick (on futures) below a doji candlestick, or at 50% of a solid candle. 

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