Mikula Forecasting Company

MarketWarrior: Smoothed Stochastic

The picture below shows the indicator Smoothed Stochastic. This is the most popular momentum indicator for swing trading. The Smoothed Stochastic responds to price movement very quickly and is a valuable tool when looking to trade a swing top or bottom. Scroll down to read a short article describing how to use this indicator with the Square of 9.



Using the Smoothed Stochastic and the Square of Nine

The chart below shows a 1 minute bar chart for Apple, symbol AAPL. There are two MarketWarrior indicators applied on this chart. The first is the Smoothed Stochastic which is the oscillator line in the subchart. The second indicator is the Square of 9 indicator described in Chapter 3 of our book "The Definitive Guide to Forecasting Using W.D.Gann's Square of Nine", I will refer this this indicator as, (Sq9Ch3) . Lets first discuss the Sq9Ch3 indicator. The Sq9Ch3 starts at the swing bottom that occurred at 11:40AM. The "Multiply by Price" setting is set to 10 to accommodate the small price range on a 1 minute chart. The standard support resistance price line of +45 degrees is shown on the chart. This line represents a price move that covers 45 degrees of movement on the face of the Square of 9. The exact price is listed as 174.51. You can see the price moved up from the 11:40AM bottom and made the tops "A" and "B" on this Sq9Ch3 support line.

Next I will discuss the Smoothed Stochastic. When the top "B" started to form, it was obvious that the Smoothed Stochastic was not going to move above the top "A". This indicator formed a Bearish Divergence between the tops "A" and "B". The bar chart top "B" was higher than "A" but on the Smoothed Stochastic the top "B" was lower than top "A". Top "B" is where the Bearish Divergence occurred, and this also formed on the Sq9Ch3 support price level. This double indicator setup is signaling that we should start watching for a down swing to follow top "B". On the chart below you can see the price did fall after top "B".