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The Stochastic Oscillator Crossover
Trading System
The
Stochastic Oscillator Crossover Trading System enters a long position when
the 5-day with a 3-day slowing %K of the Stochastic Oscillator
crosses above the 3-day %D of the Stochastic Oscillator and exits the long position
when the 5-day with a 3-day slowing %K of the Stochastic Oscillator
crosses below the 3-day %D of the Stochastic Oscillator.
Security
Tested: The Phisix
Initial
Equity: P100,000.00
Commissions: 0.25% on entries and exits
Dates
Tested:
July 1999 to Dec 2001 (Bear Market)
January 1994 to December 1996 (Sideways Market)
January 2003 to December 2005 (Bull Market)
January 1994 to December 2005 (All)
Metastock
Entry Formula:
Stoch(opt1,opt2) > Mov((Stoch(opt1,opt2)),3,S) AND
Ref((Stoch(opt1,opt2)),-1) <= Ref( Mov((Stoch(opt1,opt2)),3,S), -1)
Metastock
Exit Formula: Stoch(opt1,opt2) < Mov((Stoch(opt1,opt2)),3,S)
Bear Market Results
Sideways Market Results
Bull Market Results
From 1994 to 2005 Results
Discussion: The Stochastic Oscillator is one of the most widely-used and
most popular oscillators of all. Its popularity comes from its ease of
use and it appears to be logical in its construction. The trading system
I show here is a popular way of using the indicator, wherein one enters
long when the %K crosses above the %D and one exits the position when
the %K crosses below the %D. As one can see from the results above, the
indicator is not a very profitable system. One would have expected the
trading system to perform quite well in a sideways market but it didn't.
In fact, in all tests, the trading system simply mimicked the
performance of a buy and hold strategy. By optimizing the time periods
of the %K and the time periods of slowing of the %K, I was able to come
up with the conclusion that the best combination is a 10 to 20 day %K
with a 1 day slowing of the %K. Still, the performance of the trading
system could be improved a lot.
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