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MACD vs Stochastic OscillatorsWednesday, March 30, 2005, 2:23 AM ETWe have analyzed all 33,691 bullish signals generated by the stochastic oscillator indicator for all US optionable stocks in 1999 and found that MACD has much higher prediction power than Stochastic Oscillator. It predicts price surge within the next five days after an occurrence with 68% probability compared to 61% probability for Stochastic Oscillator. |
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According to our studies, the most statistically reliable trend is the growing momentum of “crowd behavior”, which can be revealed with the help of technical analysis. In reality, there is no miracle in the fact that a majority of investors decide to buy a stock when, for instance, two moving averages cross each other on its chart. This occurs because all investors have studied the same books, use the same charting software, and follow the same rules: “don’t fight the trend”, “the trend is your friend”, etc. That is why it makes a sense to jump in and to jump out following the crowd. The key question is: to what extent can we rely upon technical indicators reflecting a crowd behavior? We have analyzed all 33,691 bullish signals generated by the stochastic oscillator indicator for all 1. Prices rise after an occurrence is very short-lived – three or five days – and is likely to be around 2-4%.
You can see that the chart above (based on the frequency histogram) is right-skewed, but this bias over time fades and dispersion increases.
2. Comparing the two most widely used technical indicators, we can argue that MACD has much higher prediction power than Stochastic Oscillator. It predicts price surge within the next five days after an occurrence with 68% probability compared to 61% probability for Stochastic Oscillator.
We take into account both these facts, scanning the market for winning stock option picks. Our back tests give us statistical estimations that we use along with option mathematics. Click on the numbers in cells to open our Back Test Reports.
Predictive accuracy is measured in terms of probabilities to move higher after occurences. key words: MACD Stochastic Oscillator indicator stock market report, stock market research, learn about stock market, stock market education, stock market forecast, stock market trading tip,
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