Strategy 3 - Combine the Slow Stochastics with Trendlines As we just mentioned earlier in the article, the slow stochastics can provide a number of false signals.
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As KSS shows, early signals are not always clean and simple. Conclusion There is much more to trading than just a bunch of indicators on the chart.
To receive meaningful signals and improve the quality of your trades, you can combine the Stochastic indicator with those 3 tools: Moving averages can be a great addition here and they act as filters for your signals. Always trade in the direction of your moving averages and as long as price is above the moving average, only look for longs — and vice versa. As breakout or reversal trader, you should look for wedges, triangles and rectangles. When price breaks such a formation with an accelerating Stochastic, it can potentially signal a successful breakout.
Now… 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 The only indicator you need is the: The stochastic indicator was developed by George Lane more than 50 years ago. Define what the Stochastic indicator is; How to use Stochastic indicator; What are the Stochastic indicator settings; 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. The Stochastic indicator looks like this: You should really check out our amazing MACD Trend Following Strategy that we decided to share with our trading community only recently. Another reputable oscillator is the RSI indicator which is similar to the Stochastic indicator, but we chose it over the RSI indicator because the Stochastic indicator puts more weight on the closing price which by the way is the most important price no matter what market you trade.
Please have a look at the chart example below to see how to use stochastic indicator. So, how does the stochastic indicator work? The stochastic oscillator uses a quite complex mathematical formula to calculate the moving averages: The mathematical formula behind the Stochastic indicator works on the assumption that the closing prices are more important in predicting oversold and overbought conditions in the market.
What about the stochastic indicator setting? Best stochastic settings for 15 minute chart The default settings for the stochastic indicator are 14,3,1 See below: Beyond missing out on trading profits, allowing the indicator to whipsaw you like this would also rack up pretty hefty trading commissions. Now, I do not want to leave you with the impression that you can simply buy or sell a stock when 1 it is hitting a trendline and 2 going over 20 or above Trading is not that simple. You can however utilize the slow stochastics to validate the health of a trend relative to previous peaks by seeing if the stock was able to make a higher or lower slow stochastics reading.
This way you can size up a recent high relative to its predecessor to determine if its really time to sell or if the stock still has room to go, regardless if a trendline is staring you in the face. Strategy 4 - Pull the Trigger After the Slow Stochastics Crosses a Certain Threshold Anyone on the web can figure out after reading the first 3 Google results that traders should be when the slow stochastics crosses above 20 and sell when the slow stochastics crosses below So, if everyone can read this on the web, why do you think this approach will make you money?
Another approach is to allow the slow stochastics to cross above a certain threshold to confirm that the counter move has in fact begun. This level could be 50, The downside to this approach of course is that the move is likely to have a few points behind it before you enter the trade. On the flip side, this will prevent you from getting caught in a stock that is flat lining. This is of course a play on the The key with using a higher slow stochastic reading prior to entering a buy signal is to use this method for fading morning gaps down.
The reason this approach works well is it allows for you to validate the initial gap down is weakening and you can take a long position. If you were to go in the direction of a strong up trend and wait until This approach also works well in the late afternoon trading session.
Those that follow the Tradingsim blog know that I personally do not trade in the afternoon; however, strategy 4 was built for late day setups. Later in the day, the market has less volume and well experience a number of false breakouts relative to the first hour of trading. To this point, as a day trader, you will need a method for assessing which breakouts or moves are valid.
As always, a real-life example is worth a thousand words. Once CLF cleared In Summary The slow stochastics is a great indicator for identifying the primary trend. If you take it a step further and combine some basic technical analysis methods such as trendlines, you will be able to uncover some hidden trading opportunities in the market. To see how Tradingsim can help improve your bottom-line numbers, please visit our homepage. He has over 18 years of day trading experience in both the U.
On a daily basis Al applies his deep skills in systems integration and design strategy to develop features to help retail traders become profitable.
The Stochastic signals Trend reversals: When the Stochastic is changing the direction and leaves the overbought/oversold areas, it can foreshadow a reversal. Divergences: As with every momentum indicator, divergences can also be a very important signal here to show potential trend reversals.
Developed by George C. Lane in the late s, the Stochastic Oscillator is a momentum indicator that shows the location of the close relative to the high-low range over a set number of periods. According to an interview with Lane, the Stochastic Oscillator “doesn't follow price, it doesn't follow volume or anything like that. The Stochastic 3 MT4 Indicator is a trading strategy which is based on the popular MT4 Indicator, the Stochastic indicator, to produce reliable buy sell trading signals. For this strategy, a few modifications has to be made to the indicator to get what we want out of the strategy setup.
Dec 16, · 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/5(7). The Stochastic oscillator is another forex chart analysis indicator that helps us determine where a trend might be ending. This simple momentum oscillator was created by George Lane n the late s. Stochastics measures the momentum of price.
A stochastic oscillator is a technical momentum indicator that compares a security's closing price to its price range over a given time period. Discover how to use the Stochastic indicator to "predict" market turning points, filter for high probability trading setups, and better time your entries & exits. Because if you want to find high probability trades, then you want to be trading with the higher timeframe trend — and not against it.