Stochastic %D (3)

Stochastic %D is a 3-period moving average of %K. It smooths the stochastic signal and is often used for crossovers.

The calculation:

%D = 3-period Simple Moving Average of %K

Role of %D:

• Signal line: Provides crossover signals with %K
• Smoothing: Reduces noise in the raw %K signal
• Confirmation: Slower movement confirms %K signals

Trading signals:

• Bullish crossover: %K crosses above %D, especially in oversold zone
• Bearish crossover: %K crosses below %D, especially in overbought zone
• Strongest signals: Crossovers in extreme zones (below 20 or above 80)

Stochastic types:

• Fast stochastic: Raw %K with 3-period %D
• Slow stochastic: Fast %D becomes slow %K; slow %K is smoothed again for slow %D
• Full stochastic: Allows customisation of all parameters

Best practices:

• Wait for crossovers: More reliable than %K alone
• Extreme zone signals: Most significant in overbought/oversold areas
• Trend context: Trade crossovers in direction of larger trend
• Multiple timeframes: Confirm signals across different periods

The %D line adds reliability to stochastic analysis by filtering out some of the noise in the raw %K readings.