I’m still working my way through the November issue of SFO magazine. There’s a very good article by Nina Cooper in that issue about one of my favorite indicators - stochastic: “Facts and Myths of Misunderstood Stochastics” [(free) subscription required] It covers a lot of info about stochastic but the crux of the article is debunking these two myths:

  1. Overbought/oversold readings imply a trend reversal.
  2. Stochastics are useless in trending markets because they go to an extreme and stay there.

I’d bought into the second of those but the author makes some good points about how the indicator can be useful in trending markets.