What is Stochastics?
Stochastics is a technical market analysis tool developed by Dr. George Lane. Technical market analysis is an investment method that attempts to “time the market”, or predict market direction based on past behavior. Stochastics is a mathematical method used by technical analysts to assist in predicting the direction of the price of a particular stock. Stochastics is based on the facts that the market is made up of people and that any large social group as a whole will behave in a somewhat predictable manner. Since the market is also influenced by outside factors, such as current news events and random events, the patterns may be obscured by this “noise”. Stochastics is a complex mathematical method for attempting to find patterns amongst this “noise”. There are differing methods used to calculate stochastic data, and there are numerous interpretations given to this data. Proponents of the various interpretations of market stochastics argue that their particular approach is most valid.
