Stochastic Oscillator
created by George C. Lane at the end of 1950’s. This indicator is
used to determine the market situation at the last price before a
switch in trend happened at a certain time. This indicator is also
used to determine the strength of the relationship of the last market
price against time. Mathematically, Stochastic Oscillator is defined
as:
Recent close – Lowest
Low
%K =
[
Highest High – Lowest
Low
] x 100
At a certain period of
time
Recent close = price
closing at the end
Lowest low = lowest
price for a certain period of time
Highest high = highest
price for a certain period of time
SETTING
In order to obtain the
graph indicator as above, you must take a few steps to set your
indicator.
You can follow these
settings:-
Step 1
Click INSERT and then
INDICATOR then OSCILLATORS and then STOCHASTIC
OSCILLATOR and a box will
appear on your screen.
Step 2
Click PARAMETERS and
follow these settings:
• %K period = 5
• %D period = 3
• Slowing = 3
• Price Field =
Close/Close
• MA Method = Linear
Weighted
• Fixed Minimum = 0
• Fixed Maximum =
100
Step 3
Click COLORS and follow
these settings:
• Main = Light Sea
Green
• Signal = Red
Step 4
Click LEVELS and follow
these settings:
• Level = 30
• Level = 70
• Level = 50
• Style = Silver
Step 5
Click VISUALIZATION and
follow these settings:
• Click ALL TIMEFRAMES
box and SHOW IN DATA WINDOW box
HOW TO USE STOCHASTIC
OSCILLATOR
How to use Stochastic
Oscillator? Actually it’s not difficult to use because through this
method you will know the market
situation at that time whether it is OVERBOUGHT or OVERSOLD. It is not difficult to
determine whether a market is OVERBOUGHT or OVERSOLD. With Stochastic Oscillator,
you can determine it. When a Stochastic Oscillator is nearing or
passing 70th line, the market
trend is said to be OVERBOUGHT and when it is nearing or passing 30th line, the market trend is
said to be OVERSOLD.
In order to make sure
there is no mistake when opening a position whether to BUY or SELL,
you are advised to make sure
this criteria is followed:
OPEN BUY POSITION
- Make sure Stochastic Oscillator touch the ground. It means make
sure stoch reach at line 0
- Make sure stoch
crosses from line 0 first before you enter or open BUY (LONG)
position at the pair that you have chosen
- Close your position
after stoch raised to line 100 or reached the rooftop.
- If stoch doesn’t
touch line 100 and stoch crossed at the line before 100, I would like
to advice you to keep on taking advantage on the profit at that time
without waiting the stoch to get near line 100 because there might be
a sudden change of trend. Please refer to the graph below.
OPEN SELL POSITION
- Make sure Stochastic Oscillator reach the ceiling or rooftop. It
means you must make sure stoch reach line 100.
- Make sure stoch cross
from line 100 first before you enter
SELL (SHORT)
position at the pair that you have chosen.
- Close your position
when the stoch goes below line 0 or reach the ground.
- If the stoch doesn’t
reach line 0 and it has crossed at the line above line 0, I would
strongly suggest that you keep on taking advantage of the profit at
that time without waiting for the stoch to reach near line 0 because
there might be a sudden change of trend. Please refer to the graph
below.
Through this method, you
can apply to all TIMEFRAME that you want but the most ideal
timeframes are H1, H4, D1, W1 and MN.
In order to avoid
mistakes when entering your position, here I would like to give a few
guidance regarding stochastic oscillator that you need to follow:
• It is best that you
enter position LONG or SHORT when stochastic really crossed each
other
• Make sure you enter
the position when stochastic touches the ground (nearing line 0) or
touches the ceiling (nearing line 100) only.
• Avoid from entering
position LONG or SHORT when stochastic has passed line 50 no matter
if the stoch is still going up or down. There might be a sudden
change in trend.
• Make sure you refer
to all TIMEFRAME in order to avoid any mistake when you enter
trend. Begin from bigger TIMEFRAME to smaller. For example MN,
W1, D1, HR, H1, M30, M15 M5 & M1.
• Make sure you take
profit when stochastic crossed, no matter if the stochastic is
nearing line 100 or line 0. It is to avoid FALSE SIGNAL in the
middle of the trend as shown in the graph above where the trend
changed in the middle of stochastic,( filter trades on higher time frame in trend's direction. ).
• Lastly, be confident
with the position decision that you have entered by being relaxed.
Follow and believe in the
indicator that you are using.
In the picture above
there are many false signals you can filter trades on higher time frame in trend's direction.
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