Trades taken in the direction of the major trend tend to be more successful than trades against the trend. Thus, it behooves traders to screen trades with a higher time frame filter.
Traders are often too impatient to do so. Thus the Permission Stochastic computes a synthetic higher time frame stochastic, which is based on a moving higher time frame window that ends with each bar. For example, a weekly bar is defined as the last 5 business days, ending today.
The sped up filter is thus the best compromise between filtering in a higher time frame and minimizing delays in trading.
Interpretation: Permissioned traders may take long trades when the Permission Stochastic is riding the top of the chart and when Permission K is above Permission D and both are close together. The opposite applies to short trades. Traders are also permissioned long when the market has been oversold, the difference between Permission K and Permission D is large and Permission K has already turned up. Again, the opposite applies to permissioning short trades.
Permission Stochastic Parameters
•Display
•Period: Number of synthetic bars in the Permission Stochastic.
•X: Number of bars that make up the longer term. For example, if you are trading a daily chart, setting X to 5 will give you a five day or weekly stochastic to screen your signals.
Permission Stochastic Characteristics
Permission To Go Long
•When the stochastic values are near the top of the chart and close in value.
•When the Permission Stochastic values have been near the bottom of the chart, Permission K is both well above the Permission D and above (or has risen out of) oversold territory.
•When the Permission Stochastic values are both below 85 percent and above 15 percent and Permission K is above Permission D.
Permission To Go Short
•When the Permission Stochastic values are near the bottom of the chart and close in value.
•When the Permission Stochastic values have been near the top of the chart, Permission K is both well below the Permission D and below or has fallen out of overbought territory.
•When the Permission Stochastic values are both below 85 percent and above 15 percent, and Permission K is below Permission D.