As we have seen above, when the Stochastic is above 80 it means that the trend is strong and not, that it is overbought and likely to reverse. A high Stochastic means that the price is able to close near the top and it keeps pushing higher. A trend where the Stochastic stays above 80 for a long time signals that momentum is high and not that you should get ready to short the market.
The image below shows the behavior of the Stochastic within a long uptrend and a downtrend. A high Stochastic value shows that the trend has strong momentum and NOT that it is overbought.
4# Stochastic and EMA Multitimeframe Trading System
Finally, I want to provide the most common signals and ways how traders are using the Stochastic indicator:. As with any other trading concept or tool, you should not use the Stochastic indicator by itself. To receive meaningful signals and improve the quality of your trades, you can combine the Stochastic indicator with those 3 tools:. You might not need the Stochastic indicator when you are able to read the momentum of your charts by looking at the candles, but if the Stochastic is the tool of your choice, it certainly does not hurt to have it on your charts this goes without a judgment whether the Stochastic is useful or not.
More importantly, this article is meant to make you realize how little you might know about the tools you use for your trading. Additionally, there is a lot of wrong knowledge being shared among traders and even widely used tools such as the Stochastic indicator is often misinterpreted by the majority of traders.
Do not blindly believe what other people tell you, do your own research and build your trading knowledge. This information is excellent quality, it is the first time I have really understood what stochastic is telling me. Many thanks. Great article keep it up. There are many MA, which one are you referring to? So grateful to find these posts I open my eyes everytime I read a post. Thanks good bless to your life.
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This isa game changer. This is priceless!!! Thank you Sir!! Hi, nice article, but I still have some doubts, the formula to high and low is the same? Usually we see two lines, K and D, and they receive different parameters, in trandingview. Sorry if this is such a noob question, I am just starting trading. Thanks a lot. Excellent explanation Bro. I have never seen such a wonderful and completely logical explanation of any indicator.
Your research shown different dimension of technical analysis. Thank you so much for a such a helpful post. For the first time I now understand what the stochastic is telling me and how to properly use it. Thank you so, so much! Greetings from South Africa. Thanks you a million for giving us such valuable lesson.
How to Use Stochastic Indicator in Forex Trading?
This article and all of them really are absolute gold! People really do need to dig more and learn what their indicators are for and how they work before using them. They have helped me immensely with my trading. Thank you so much Mentor Rolf. Such a blessing and your labor to give us guidance how to use these indicators is indeed a Diamond-digged!
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God bless you and prayers of good health to you and your family! The devil is always in the details. What a powerful detailed explanation of stochastic indicator.
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Please Do you have any write up on multiple time frame trading using stochastic indicators. What moving average would be appropriate for day trading? Also, what are the ideal settings for the stochastic? I have 5,3,3 as I day trade. Please advise. Thank You Sir, its very informative info. Very nicely described and correlated with other tools. Very informative and off course in simple words. Thank you very much for taking the time to share such valuable knowledge!
We really appreciate all your hard work and how much time you invested in these blogs! Congratulations friend, your blog is undoubtedly the best in technical terms and mindsets. Thank you and I await you in Brazil. Why not share! Embed Size px. Start on. Show related SlideShares at end. WordPress Shortcode. Full Name Comment goes here. Are you sure you want to Yes No. Be the first to like this.
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The most commonly-used values of N used for single, basic stochastics are time-periods of 5, 9, or 14 units. Many traders set N at 14 time-periods in order to represent a sufficient data sample for meaningful calculations. You can experiment with a different number of periods, and this may affect the results of the strategy. Of course, for my dual stochastic strategy as outline below in this article, I use two different sets of time periods. As indicated above, the classic stochastic calculations are based on a simple moving average SMA.
However, for the dual stochastic strategy described below, I also use an additional exponential moving average EMA as a separate confirmation indicator. In contrast to the basic single-stochastic indicators described above, a dual stochastics strategy provides a greater number of winning trades.
My dual stochastic forex trading strategy is based on combining together a fast and slow stochastic and waiting for opportunities when the two different indicators are at extreme opposites. Or, as an alternative, you could confirm signals by using the middle band of the Bollinger bands.
I combine both of the stochastic oscillators in the same window in the MetaTrader chart.
Then enter your settings in the dialog box. The trading rules are easy. The mechanical trading system is programmed to wait for strongly-trending price, and watch for the stochastics to be at extreme opposites, near the limit values.
Double Stochastic Forex Trading System | NSBroker
For confirmation, the system looks for a candlestick pattern signaling a reversal after a brief retracement to the period EMA. Examples 1 and 2 are clear signals. Example 3 is marginal, since the slow stochastic is just beginning to move up away from the oversold area. In Example 1, note particularly that the slow stochastic the yellow band is quite oversold, and at the same time the fast stochastic blue-colored band has just finished moving beyond the extreme overbought limit.
Note also that the 20 EMA was touched. The separate EMA indicator provides confirmation of the signal shown by the stochastic oscillators. The slow stochastic yellow is flat and touching the oversold limit, while the fast stochastic blue has touched the overbought limit. This last example above is a good reminder that the dual stochastics forex trading strategy is best used with a mechanical trading system programmed with firm trailing-stop and stop-loss rules to ensure that you ride the winners for as long as possible, while minimizing the losses.