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London South East does not authorise or approve this content, and reserves the right to remove items at its discretion. Trading with Stochastic indicator involves the following signals: Stochastic lines cross — indicates trend change. Stochastic staying above 80 level — uptrend is running strong. Stochastic exiting 80 level downwards — expect a correction down or beginning of a downtrend. 20 — expect an upward correction or a beginning of an uptrend. The main idea behind Stochastic indicator according to its developer, George Lane, lies in the fact that rising price tends to close near its previous highs, and falling price tends to close near its previous lows.
Stochastic is plotted on the scale between 1 and 100. There are also so called “trigger levels” that are added to the Stochastic chart at 20 and 80 levels. Those lines suggest when the market is oversold or overbought once Stochastic lines pass over them. Let’s look at three methods of trading with Stochastic indicator. This is the simplest and common method of reading signals from Stochastic lines as they cross each other. D line downwards traders open Sell orders.
D line upwards traders open Buy orders. Traders may choose sensitivity of their Stochastics. The smaller the Stochastic parameters, the faster it will react to market changes, the more crossovers will be shown. But because it is too choppy it should be traded in combination with other indicators to filter out Stochastic signals. Traders are looking for a divergence between Stochastic and the price itself.
At times when the price is making new lows while Stochastic produces higher lows creates dissonance in the picture. Divergence between price and Stochastic readings suggest a forming weakness of a main trend and therefore its possible correction. Applying this smoothing factor allows Full Stochastic be a bit more flexible for chart analysis. Thank you for your feedback, guys! You’re also right, I should do some work RSI indicator too. Man that was well explained in such few lines, I looked the explanation somewhere else and so far yours is short and well presented.
You are a teacher that teaches what matters most to your students. After reading through this explanation all is clear. Thanks for making it so easy to understand. Yeah thanks, the explanation is shot but covers all the silient parts. I’m really glad you like it!
Thanks, I really appreciated the tutorial because it is easy to understand as you stated the data with clear explanation and formulas. Seems U got much savvy in this aspect. Couldn’t found what to say cuz of excellence, and the method of teaching never seen before, TIPTOP! I have heard that the experienced players are using double or triple Stochastic inidcators with different parameters and they are enough for them if they have learned to use them correctly. If so, how do they use? Forex traders would pick only those signals, that go with the direction of a trend. As an example, Forex traders can use 34, 5, 5 and 5, 3, 3 Stochastics together.
Great info on the Stocastic Indicator — thanks! Try focusing on 1 hour and daily charts. I’d believe that for your purposes you can use the same set of indicators, among which I would try MACD, Stochastic, then possibly also Parabolic SAR and some Moving averages. Custom indicators would also be worth your attention.
Unfortunately, I can’t help with the software question. I have any question – know You how indicators are using on this video above PLEAS? I’m not sure if I understood your question. Please feel free to ask again. In the video it night be 5, 3, 3 Stochastic – the default settings for Stochastic in MT4 platform. But sometimes both lines are so similar. Thanks so much for your help.
Color Stochastic indicator shows overbought and oversold levels. 20 – market being oversold, Stoch line turns red. Ability to see these areas at a glance helps to judge about trends and reversals. At the same time a reversal momentum should be anticipated soon. Each one will sound when reaching certain levels or when crossing each other. Looking at google images, there is absolutely nothing in between those two indicators. It’ll slow and widen the Stochastic graph, and yes, it can change the timing of your entries and exits.