Forex trading strategy #3 (Stochastic High-Low)

Sometimes it reverses half way ie moves above 20 but before it reaches 80, it reverses back down. Any ideas to overcome this?

Stochastic properties - Simple.

Regards,
Edward

please, the stochastic properties, are they simple or exponential

Good comment, Francois

It would most likely require some adjustments for shorter time frames. But I don't have specific data to suggest. Proper testing would tell.

Regards,
Edward

Can this strategy only work on the daily graph? How reliable would it be say for the 15 min to 1 hr graphs as well? I see they rarely crosses the 10 and 90 lines on the shorter time frames - Should the "%K" , "%D" and "slowing" values be adjusted for the shorter time fames

Francois

Hi Lynn,

We wait till both Stochastic lines to cross 80 or 20.
Since Signal line is moving few steps behind Stoch line, we could say that we basically wait for a Signal line to cross 80 or 20.

Regards,
Edward

Hi Edward:

I am using a Metatrader 4 Broker. Do I wait until the Stochastic cross 80 or 20, or should I wait until the Signal crosses 80 or 20? Thanks.

Lynn

14, 3, 3 are Settings for Stochastic indicator in Forex.
Each time you add new Stochastic indicator to your charts your trading platform should pop up a window where it would ask about settings you'd like to enter for a current Stochastic. You enter those digits there, where
%K period = 14
%D period = 3
Slowing period = 3

Regards,
Edward

what does 14, 3, 3, means and how do i set it up?

Yes, you can still buy it. However, as you have mentioned, it would be good to have a confirmation.

I wouldn't suggest though using Williams R% for confirmation, since both Stochastic and Williams R% belong to the same category of Momentum indicators, which means they display pretty much the same data.

Instead, look for confirmation indicators among either trend indicators (Moving averages, MACD, ADX, SAR etc) or volume indicators (Volume, Money Flow Index, Chaikin Money Flow, Volume Rate of Change etc) or Volatility indicators (ATR, Bollinger Bands) etc etc.
The main idea is to employ an indicator that will cover another aspect of the market, which will make your signal confirmation valid.

Regards,
Edward

if it does not go past 10, maybe 15 and cross 20, can i still buy? Can i use William Percent range as a guide to Stochastic ?

Try placing a stop loss above (downtrend) / below (uptrend) the previous daily candle.

Regards,
Edward.

Where do i put the stop loss?

In simple words, Stochastic oscillator uses two lines: %K - a fast line and %D - a slow line.

%K line is calculated using the most recent close, the highest high over the last X days and the lowest low over the last X days.

%D line is a Y period moving average of %K

General rules can be described as follows:

Signals to Buy and Sell occur when %K crosses above or below %D.
Reading above 80 suggests an overbought market and reading below 20 - oversold.

Regards,
Edward.

Hi Edward,
what does %K and %D represent on the Stochastic indicator, and which of the histograph is main and signal?