The Worden Stochastic indicator returns the Percentile Rank of the most recent closing Price when compared to all of the other closing values during a specified Period.
Indicator values are generated based on the following calculation:
Worden Stochastic = (100/n-1)(Rank)
The resultant value is then smoothed using a specified smoothing constant.
Worden Stochastic Calculation Example:
Assume Price Closes for the following dates:
8/11 Close = 1
8/12 Close = 7
8/13 Close = 3.5
8/14 Close = 5
8/15 Close = 2
Step 1 - Arrange in ascending order by Price Close value; note rankings as follows:
8/11 Close = 1 ………… Observation Rank = 0
8/15 Close = 2 ………… Observation Rank = 1
8/13 Close = 3.5 ………… Observation Rank = 2
8/14 Close = 5 ………… Observation Rank = 3
8/12 Close = 7 ………… Observation Rank = 4
Step 2 - Locate the most recent observation (one for which calculation is taking place) within the ordered list; note the rank. In this case, the most recent value is the 8/15 Price Close. This rank = 1 as noted above.
Step 3- Calculate Worden Stochastic value based on established equation:
Worden Stochastic = (100/n-1)(Rank) = (100/4)(1) = = 25
This calculation assumes a smoothing constant of 1; however, you may choose to assign a different smoothing constant, effectively including a Moving Average calculation as the final step of Worden Stochastic value determination.
The value of the Worden Stochastic will often differ from that of the standard Stochastic indicator, since its calculation is based on the Price Close rank within a list of observations WHILE a standard Stochastic calculation answers the question ‘What percentage of the n-period Close Range is represented by the current Price observation?’. The answer to this question in the case of the example here is as follows:
Stochastic = [(Current Close - Period Low)/(Period High - Period Low)] *100
= [(2-1) / (7-1)] *100
= (1/6) *100
= .1666666 *100
This calculation also assumes a smoothing constant of 1.
While the Worden Stochastic returns a value of 25 for this set of five observations, the standard Stochastic returns a value of 16.7.