Evaluation of a Stochastic Oscillator Equity Trading Method

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Presentation transcript:

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 As the trend matures, stocks close further off their highs/lows

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

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

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)

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

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