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Evaluation of a Stochastic Oscillator Equity Trading Method

Evaluation of a Stochastic Oscillator Equity Trading Method. 27 February 2003. CamShaft Investors Ashvin Chandhok Sohit Khurana Pete Nolan Chris Rieger. Stochastic Oscillator Assumptions. Upward/downward moving stocks tend to close near the highs/lows of their trading ranges

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Evaluation of a Stochastic Oscillator Equity Trading Method

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  1. Evaluation of a Stochastic Oscillator Equity Trading Method 27 February 2003 CamShaft Investors Ashvin Chandhok Sohit Khurana Pete Nolan Chris Rieger

  2. Stochastic OscillatorAssumptions • Upward/downward moving stocks tend to close near the highs/lows of their trading ranges • As the trend matures, stocks close further off their highs/lows

  3. Oscillator Parameters CL = close[today] – lowest low[in %K periods] HL = Highest High [in %K Periods] - Lowest Low [in %K Periods] %K = CL / HL %D [fast] = moving average of %K %D [slow] = moving average of %D [fast] Monitor %D for buy/sell signals

  4. Illustration (S&P500) BUY when cross above lower limit SELL when cross below upper limit

  5. Optimization & Forecast • Maximize % return over test period (1965-1997) • %K period • %D1 period • %D2 period • Upper/Lower thresholds • Apply parameters and forecast out-of-sample (1998-2003)

  6. Building on this? • Need non-Excel platform for optimization • Use both fast & slow %D? • Combine with other technical indicators?

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