The basic settings of stochastics. The stochastic indicator is produced from a complex formula. In basic terms, it works using the closing price of the product in relation to the high-low range of the price over a set number of past periods.

The typical setting is a 14 period. It produces two lines. Like the Relative Strength Index R. I , it works around a range of 0 to As you can clearly see from the chart above, the stochastic indicator can produce false signals. For this reason, it is not recommended as a stand-alone product and should only be used as extra confirmation.

Price needs to be studied and analyzed before placing emphasis on indicators. The oscillator can also be used to produce bullish or bearish divergence. This highlights that the momentum or strength of the last rally or selloff is weakening. Divergence is often seen at the top or the bottom of a trend or can indicate at least a correction in the opposite direction.

Bullish divergence highlights the asset making a lower low while the stochastic indicator makes a higher low. Bearish divergence highlights the asset making a higher high while the stochastic indicator makes a lower high. Conclusion: Used in conjunction with other charting methods such as reversal candle formations and divergence, can strengthen the stochastics capabilities. The material provided here has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication.

Whilst it is not subject to any prohibition on dealing ahead of the dissemination of investment research we will not seek to take any advantage before providing it to our clients. There are several ways to interpret a stochastic oscillator. The stochastic oscillators can show overbought market conditions when it is above 80 or oversold market conditions when it is below When the stochastic main line crosses the signal line up, this is considered to be a buying signal.

When the stochastic main line crosses the signal line downwards, this is considered to be a selling signal. If the cross happens in the extreme 20 or 80 zones, the signal might be considered even more powerful. For instance, if we see a stochastic crossover to the upside and the stochastic is below the 20 level, the market might be oversold and starting to turn upwards.

If the downwards cross happened above the 80 level, the market could be overbought and about to start trending down. If 2 stochastic with different settings both agree, this could be considered a more powerful signal compared to using just one stochastic indicator.

Then we can look at stochastic divergence. For example, the price makes a new high, but the stochastic fails to reach a new high. Or, price makes a new low, but the stochastic fails to make a new low. The double stochastic oscillator is a separate indicator that you might want to check out. It can also be useful for determining trend reversals and market trends. The double stochastic strategy combines all elements that we discussed above, the crossover, extreme levels and divergence.

We use a period moving average to decide the direction we will look for trades so that we trade in line with the trend. If price is above the moving average, we will look for buy signals. If price is below it, we will look for sell signals. I personally would not take the double stochastic signals without confirming each buy or sell trade with additional market analysis.

I would want to check support and resistance levels and other indicators to make sure they agree with the setup. This can help to avoid false signals and allows us to time our entry that little bit better which can make a big difference when it comes to where we place the stop loss.

In theory, you could use the double stochastic strategy on any currency pair and chart timeframe. I also prefer the 1-hour charts and above as there can be too much market noise on the lower chart timeframes such as the 1-minute and 5-minute charts. This can lead to more false signals. The double stochastics are both showing an uptrend crossover around the oversold zone.

We also have a strong bullish engulfing bar that contains many red bars which is another indication that an uptrend may be commencing. Stop loss could have been placed just below the 50 SMA which would have been around 50 pips. The uptrend continued for around pips if we exited the position when price closed back on the other side of the 50 SMA.

The double stochastics are showing downtrends and not in the oversold area. Price has recently breached support and has formed a new resistance level. There are bearish candlestick patterns including an evening star. We could have placed the stop loss just above the 50 SMA which would have been around 50 pips.

A good exit point would have been when price closed back above the 50 SMA, which we could have also used as a trailing stop loss. Yes, I think the double stochastic strategy is very powerful when implemented correctly. Of course, just like any forex strategy , it will require the user to have good forex money management and trading discipline.

This can be the difference between good and bad performance, no matter how amazing the strategy you are using is. If you want to test the double stochastic strategy, you could always start on a demo account and see how it goes. You can get a free forex demo account loaded with virtual funds from most forex brokers.

by TradingStrategyGuides Last updated Jun 28, All Strategies , Indicator Strategies 37 comments. As the name suggests, this is a stochastic strategy suitable for day traders. The stochastic strategy is much the same as the Day Trading Price Action - Simple Price Action Strategy. The only difference this time around is that we incorporate a technical indicator into this strategy.

Namely, the stochastic indicator. This is the best Stochastic trading strategy because you can identify market turning points with accurate precision.

This can turn you into a modern sniper elite trader. The Stochastic indicator will only make you pull the trigger at the right time. A modern sniper elite trader only pulls the trigger on a trade when he is certain he can pull a winning trade.

Our team at Trading Strategy Guides is developing the most comprehensive library of Forex trading strategies. Our goal is to help turn your trading around. Our favorite time frame for the Best Stochastic Trading Strategy is the minute chart. This is because we have taken the time to backtest the best Stochastic Trading Strategy. We also tested the minute TF over and over again. The stochastic strategy evolved into being one of the best stochastic strategies. Despite the stochastic indicator being a very popular indicator among traders, they have been using it the wrong way.

Our team at Trading Strategy Guides. com interprets the charts and the indicators in an unorthodox way. We have your back. Our favorite MACD Trend Following Strategy is the best trend following strategy. For every Forex strategy, we make sure we leave our own signature and make it simply the best. You can also read our best Gann Fan Trading Strategy.

Before we move forward, we must define the indicators you need for day trading with the best Stochastic Trading Strategy and how to use stochastic indicator. Stochastic Indicator: This technical indicator was developed by George Lane more than 50 years ago. There is a reason why this oscillator survived for so many years. The Stochastic indicator is a momentum indicator that shows you how strong or weak the current trend is.

It helps you identify overbought and oversold market conditions within a trend. The stochastic indicator should be easily located on most trading platforms.

Indicators, like the MACD indicator, are more suitable for swing trading. You should really check out our amazing MACD Trend Following Strategy. We decided to share this with our trading community recently.

Another reputable oscillator is the RSI indicator, which is similar to the Stochastic indicator. We chose it over the RSI indicator because the Stochastic indicator puts more weight on the closing price.

This is the most important price no matter what market you trade. This strategy can also be used to day trade stochastics with a high level of accuracy. The stochastic oscillator uses a quite complex mathematical formula to calculate simple moving averages:.

The mathematical formula behind this method works on the assumption that the closing prices are more important in predicting oversold and overbought conditions in the market. Based on this assumption the Stochastic indicator works to give you the best trade signals you can possibly find. Now, before we go any further, we always recommend taking a piece of paper and a pen and note down the rules.

This is a crucial part of the strategy because we only want to be trading in the direction of the higher time frame trend. com has put a great deal of time into developing the best guide to Trading Multiple Time Frames - The Key to Successful Trading.

The multiple time frame concept is important because it can give you a more robust reading of the current price action and more it can help you better time your entry and exit points. The minute chart is the best time frame for day trading because is not too fast and at the same time not too slow. It is said that the market can stay in overbought and oversold condition longer than a trader can stay solvent. So we want to take precautionary measures, and this brings us to the next step on how to use the stochastic indicator.

Right now is the time you should switch your focus to the price action, which brings us to the next step of the best stochastic trading strategy. A Swing Low Pattern is a 3 bar pattern and is defined as a bar that has one preceding and one following bar with a higher low.

Here is how to identify the right swing to boost your profit. So, after following the rules of the Best Stochastic Trading Strategy , a buy signal is only triggered once a breakout of the Swing Low Patterns occurs.

You want to place your stop loss below the most recent low, like in the figure below. But make sure you add a buffer of 5 pips away from the low, to protect yourself from possible false breakouts. Knowing when to take profit is as important as knowing when to enter a trade. The Best Stochastic Trading Strategy uses a static take profit, which is two times the amount of your stop loss. Day trading with the Best Stochastic Trading Strategy is the perfect combination between how to correctly use stochastic indicator and price action.

The success of the Best Stochastic Trading Strategy is derived from knowing to read a technical indicator correctly and at the same time make use of the price action as well. We also have training for the best short-term trading strategy.

Please leave a comment below if you have any questions about the Stochastic Trading Strategy! Please Share this Trading Strategy Below and keep it for your own personal use! Thanks Traders! We specialize in teaching traders of all skill levels how to trade stocks, options, forex, cryptocurrencies, commodities, and more. Our mission is to address the lack of good information for market traders and to simplify trading education by giving readers a detailed plan with step-by-step rules to follow.

I found it easier to understand this Stochastic explanation and I will put into practice when the markets open, to check my understanding. Hi Very very good , thank you so much.

Can I have the settings for 5 minutes timeframe intraday trade please. very interesting strategy however it does not explain the possible difference in the chart structures of timeframes i.

Super easy strategy. One question. Do you get out of the trade once the k and d have crossed over the 80 level? I am beginner. I like the way you explain its. Would love it if you can produce pdf for me so that i can print. Thank you very much.. warm regards. Appreciate this is an old thread but I have just been backtesting and have a question if that's OK. I have found several instances when having identified the correct setup on the daily, I look at the 15 minute and the stchastic is between the bands.

For example for a short trade are you saying that if the 15 min stochastic is between the bands after checking the setup on the daily then it is best to wait for the stoch to break into overbought, cross and return to the 80 level level before looking for the swing high.

Not sure i have explained all that well but hope you know what I mean lol I think that the settings should be default with this strategy! The NT8 version may look a bit different. I am also a big fan of the Stochastic indicator but I like to use a faster setting, this is. Thanks for the feedback. All traders are different so that is perfect if you have had success using those settings. Can we use it on the 1 hour chart? I like the 1 hour chart because one can day trade and swing trade with it, plus one doesn't have to stare at the charts multiple times during the day.

Thanks for this great strategy,Just want to find out if this stochastic settings will work 14,3,2? Thanks for the tweaking of an already great indicator! Couple of questions: 1 Article says to use Default settings of 14,3,3 but in the example box it says 14,3,1 - not a great difference but I want to be sure of the right settings.

Do you have or know of a 3-Bar Fractal Indicator that will mark this pattern like the standard 5-Bar Fractal Indicator? I have found only one on line and it was quite expensive to purchase I am too cheap. That is a really good question perhaps we could ask TSG to see if they would make one because they really make great indicators. To answer your first questions, yes the defaults are 14,3,1. png See attached Pic of this Second, great idea!

We have many new indicator ideas currently and we can add this to our list. Its traders like you who keep us motivated to help. Thanks for sharing your idea. Thank you for this strategy 🙂 I like it because stochastic is my favorite indicator and I cant wait to test it. However,I would like to hear your opinion about implementing this strategy in binary options.

Since things are a bit different in binaries, what you think about expiration time?

Related Articles. Divergences : As with every momentum indicator, divergences can also be a very important signal here to show potential trend reversals, or at least the end of a trend. But I need an explanation. Forgotten Password. Michael Marcus.

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