Stochastic oscillators can be a valuable stochastic forex analysis daily for mechanical forex traders. Yet, traders often use stochastics together with numerous unrelated indicators, and the results are generally ho-hum.
Like some other traders, I’ve found that using a single stochastic oscillator usually doesn’t produce consistent winners. One stochastic by itself doesn’t seem to yield eye-popping gains. The good news is that a dual stochastic forex trading system can produce excellent results. I’ve discovered that a winning strategy can be built simply based on dual stochastic indicators, with very little else to clutter the picture. When used with the appropriate parameters, a system programmed to monitor dual stochastic indicators can signal when the price of a forex pair is trending yet overextended during a period of short-term retracement. This dual stochastic strategy focuses on trading when the two indicators are showing extreme opposite values.
When both the fast and slow stochastics are at or near the designated limit values, it signals a trading opportunity. I use my mechanical trading system to watch for such conditions, and enter a trade when the price is about to revert back to the continuation of that trend. For me, it’s a good, simple forex trading system that works very well on its own, without adding other, more-complex indicators. I’ve used this strategy for trading over a variety of time frames from fifteen-minute to daily.
Stochastics are based on the idea that during an uptrend prices will stay at or above the closing price of the previous time period. Likewise, during a downtrend prices will stay at or below the closing price of the previous time period. This easy-to-calculate oscillator was one of the very first indicators used by technicians searching for insight into price moves. It’s a momentum indicator, and it reflects support and resistance levels.
When he first developed this concept, Dr. Lane advocated the use of divergent and convergent trendlines drawn according to stochastics. And, during the earliest use by Dr. Lane and others, stochastic oscillators were usually used with other tools such as Elliot Waves and Fibonacci retracements for best timing.