STOCHASTICS

The stochastic momentum oscillator is used to compare where a security's price closed relative to its price range over a given period of time.

The main difference between fast and slow stochastic is the fast stochastic is more sensitive than the slow stochastic to changes in the price of the underlying security and will likely result in many transaction signals.

K and D are the periods used in the formulas for Stochastic

I prefer a 12 period K and 3 period D Slow Stochastic momentum oscillator for both swing and day trading (smooth the bumps like exponential MAs). Longer term could use 14,5 and intraday could use 4,2. One of the popular traders on twitter uses 5,3.

It is calculated using the following formula:
%K = 100[(C – L12)/(H12 – L12)]
where
C = the most recent closing price
L12 = the low of the 12 previous trading sessions
H12 = the highest price traded during the same 12-day period.

A three-period moving average of the %K called %D is usually included to act as a signal line. It is bullish when K crosses above D and bearish when K crosses below D. The security is overbought when K is above 80 and oversold when K is below 20.

The ideal entry is when K is in oversold territory and begins to curl up and cross above D. Likewise, the ideal exit is when K is in overbought territory and begins to curl down and cross below D. For scalping this would apply to a One Minute Chart, Day Trade consider a 10 Minute Chart, Swing Trade consider a Daily Chart, Speculation consider a Weekly Chart.