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Technical Studies Reference

Stochastic Function

This study calculates and displays a Stochastic Function and Trigger Line for the data given by the Input Data Input. This study is an ACSIL implementation of the Stochastic functions described Chapter 8 of the book Cybernetic Analysis for Stocks and Futures by John Ehlers.

Let \(X\) be a random variable denoting the Input Data, and let the Length Input be denoted as \(n\).

Note: This study is not meant to be applied to Price Data. It is meant to be applied to an oscillator.

To apply the Stochastic Function, take the following steps.

  • Add the desired oscillator study to a chart.
  • Add the Stochastic Function study to a chart.
  • Select the Stochastic Function study in the Studies to Graph section of the Chart Studies window and click Settings.
  • In the Study Settings window for the Stochastic Function, go to Based On and select the oscillator.
  • For the Input Value of the Input Data, select the Subgraph corresponding to the oscillator.
  • In the Study Settings window, click OK.
  • In the Chart Studies window, click OK.

We begin by computing the Stochastic Ratio of the Input Data, \(StochRat_t(X,n)\).

Then we compute a smoothed Stochastic Ratio, denoted as \(StochRat_t^{(S)}(X,n)\), which we compute as follows.

\(\displaystyle{StochRat_t^{(S)}(X,n) = \frac{1}{10}\sum_{j = 1}^4 j \cdot StochRat_{t - 4 + j}(X,n)}\)

We then compute the Stochastic Function for the oscillator, denoted as \(X^{(Stoch)}_t(n)\), as follows.

\(X^{(Stoch)}_t(n) = 2\left(StochRat_t^{(S)}(X(n),n) - 0.5\right)\)

The Trigger Line for this Indicator is given below.

\(Trig^{(SX)}_t(X,n) = 0.96\left(X^{(Stoch)}_{t - 1}(n) + 0.02\right)\)


*Last modified Monday, 03rd October, 2022.