As with the stochastic, a basis of the slow stochastic is the phenomenon that in the course of an upward movement, prices are closer to the daily highs, whereas in a downward movement, prices are closer to the daily lows. The Slow Stochastic indicator shows whether the closing price of a security tends to be at the upper or lower end of the trading range during the course of the day. Slow stochastics can be used to make forecasts about the price trend.

Slow Stochastics more accurate than Stochastics 

The slow stochastic indicator compares the respective closing price in relation to the trading range, the difference between the high and the low price in the selected trading interval. Because the normal stochastic is too choppy for many analysts, the (slow) slow variant of this indicator is often used. This generates fewer signals, but with a higher hit rate.

The most significant difference between the normal stochastic and the slow stochastic is that only the closing price is examined instead of all prices in the time period.

Calculating price trends 

The determination by the slow stochastic is practised by putting the difference between the closing price and the lowest price of the time interval in relation to the trading range - i.e. the difference between the highest and lowest price - and multiplying it by 100. In this way, the price development, usually over three to eight days, can be analysed and in this way the so-called %K line is obtained. From this, the %D line is obtained, which represents the moving average of the %K line.

Buy and sell signals with the Slow Stochastic 

The evaluation is the same as with the "simple" stochastic. Chart technicians assume a buy signal when the %K line crosses the %D line from bottom to top. Accordingly, it is a sell signal if the %K line crosses the %D line from top to bottom. 

In addition, analysts interpret buy signals when the %K line climbs out of the lower border area above 20 or, depending on the risk appetite, above 30. Similarly, a sell signal is assumed if the %K line slips below 80 or 70 from the upper limit area. Furthermore, a trend change may be imminent if the Slow Stochastic indicator points to divergences from the stock trend.

Suitable in trend phases 

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Like the stochastic indicator, the slow stochastic indicator is suitable for detecting reversal points in sideways movements and slight trend phases. In phases of pronounced trends it makes less sense to use the stochastic indicators. Both should only be used in conjunction with trend-following or trend-confirming indicators such as the TBI indicator.

Meaning of the signals of the stochastic indicator 

The stochastic indicator determines the relationship between a closing price and the range of the daily fluctuation. The daily spread between the high and low price reflects the maximum values that buyers were willing to pay or - conversely - that sellers demanded as a minimum. In this context, the relationship between the closing price and these extreme values can provide information about who was ahead at the end of trading and how the trend will continue.