Stochastic Oscillator Strategy Refined
Disclaimer: Note, The contents of this website are for personal research purposes only. They are not intended to be investment advice or a recommendation to buy or sell any security. You should consult with a financial professional before making any investment decisions.
Stochastic Oscillator Strategy Refined! Welcome to a new day!
Stochastic oscillator strategy refined is the article to master as a forex beginner and get skillful while practicing with it daily.
Please you should never trade the stochastic oscillator in isolation; I mean you don’t have to trade it as other forex newbies do.
As a beginner, you need to find out exactly what works and what does not work.
Contents
What is Stochastic Oscillator Strategy Refined?
The stochastic oscillator is a technical indicator used in comparing the momentum of the market price of an asset over a period of time.
What is the stochastic oscillator settings?
The stochastic oscillator readings range from 0 to 100 and this is an indication of the price momentum of an asset.
The default settings of the stochastic oscillator are 14-periods either hourly or daily or on any other time frame. A reading at 0-level indicates the lowest level, and reading at the 100-level mark represents the highest level at that particular time frame.
The stochastic developer- Dr. George Lane, believes momentum always changes direction before price.
I don’t like getting my readers confused with the mathematics and calculation behind the stochastic oscillator trading strategy.
why?
You will be confused! Therefore, I will save you the stress of the stochastic oscillator formula.
I am comfortable using the 20-periods stochastic oscillator settings. And I also ensure I have the %K settings at 20-periods, the %D settings at 1-period, and slowing settings at 1-period.
The settings above will configure the stochastic oscillator to a single line rather than the conventional 2 or multiple lines.
How to win Trading the Stochastic Oscillator Strategy Refined
Too many mistakes are made by individual traders in the market while trading the stochastic indicator.
Some traders go long just because the market is oversold.
Traders go short just because the market is overbought.
Few other traders trade the divergence all because they think the market will reverse.
Greedy courage to make a huge profit will make new traders trade all the time. If you can’t control what you think, you definitely can’t control what you do. Always think well before you act or react to the market price momentum.
When to BUY/SELL in the Stochastic Oscillator Strategy Refined
Stochastic indicator buys and sells signals, what are they? Above the 80-period mark, it is a conventional belief that the market is overbought and traders should sell. Below the 20-period mark, it is believed that the market is oversold and traders should buy.
The last thing a smart trader would want to do is to blindly go short when stochastic is overbought or to go long when the stochastic is oversold.
At above the 80-period mark of the stochastic, the market price of an asset has strong bullish momentum. And below the 20-period mark, the market price of an asset has strong bearish momentum.
It will be deadly to a traders’ equity just to blindly buy/sell at oversold or overbought positions accordingly.
Market price can remain overbought or oversold for a longer period of time than expected. Can your equity take such a risk? Take calculated risk as I always advise.
When to trade Divergence in Stochastic Oscillator Strategy Refined
A divergence is expected when market price makes a higher high but the stochastic indicator shows a lower high contrary to market price meaning a divergence from price action.
Conventionally, spotting a divergence means a reversal is about to occur, but this does not tell how soon the reversal could happen.
The above major mistakes have made many traders believe the stochastic does not work. How to avoid these mistakes while trading the stochastic oscillator strategy in forex.
Adopting the Stochastic Oscillator Strategy Refined
It is common sense to move with the trend!
The same goes for trading the trend. You should never go against the market trend.
No individual trader has the potential to change the market trend.
Use the stochastic oscillator to find a high probability trade and trade it. How do you do that? With the help of price action and other indicators, you can trade the stochastic oscillator trading strategy better.
Always use the longer hour time frame to make your final decisions.
Use top-down analysis reading on the time frames. First, check the monthly time frame to see the position of market price and answer questions about all-time highs or all-time lows.
Then go to weekly time frame, daily time frame, then 4-hour before the 1-hour time frame before making a decision whether to go long or short.
Use the 200-SMA to validate the trend of the market, a market price above 200-SMA indicates an uptrend, and a market price below 200-SMA indicates a downtrend.
Finally,
GO LONG when the stochastic line crosses above the 20-level mark while you look for a long bias
GO SHORT when the stochastic line crosses below the 80-level mark while you look for a short bias.
When not to Trade the Stochastic Oscillator Strategy Refined
The stochastic oscillator indicator measures momentum and it is advised not to use this indicator when you don’t fully understand how it works.
In a ranging market, the price oscillates between the 30-level mark and the 70-level mark and you will be able to sell or buy in the ranging market using the powerful candlestick pattern knowledge.
Conclusion
The Stochastic Oscillator Strategy Refined is used by both beginners and advanced traders alike.
It can be employed in both trending and ranging markets because it produces a wide range of buy and sells signals.
Disclaimer: Note, The contents of this website are for personal research purposes only. They are not intended to be investment advice or a recommendation to buy or sell any security. You should consult with a financial professional before making any investment decisions.
