In this article I want to show you a good profitable way to use the stochastic indicator. Trend is your friend, you must have that at the back of your mind and follow the steps as descibed here. Most traders use stochastic as a momentum oscillator, but in this article I will also use it as a trend indicator in a multi-timeframe analysis.
Success in your trade will be attained only if you follow the trend in a multi-timeframe trading. I will be using stochastic indicator in two batches of settings. One is LONG stochastic (14,7,3) and the other is the SHORT stochastic - default settings (5,3,3). Your Monthly chart should look like the one below.
In the monthly timeframe above, I am interested in the LONG stochastic of 14,7,3. The "7" is the "slowing" parameter. I use this for trend. The current direction is UPTREND where the green line is above the red line.
Where the greenline is below the red line then we have DOWNTREND like the image below:
Now that I have established the trend, let us plan entry. I will need the weekly timeframe. The current trend is UPTREND in the monthly timeframe. like below:
From the red vertical line forward I want to consider BUY only. Before I buy will want to see some actions in the weekly and 4hour timeframes. In the weekly timeframe below, I want to see the SHORT stochastic (5,3,3) to go below 50 level as marked in the chart below.
The blue boxes must be noted, these areas are your entry areas in the 4hr timeframe. But here in the weekly timeframe, you will not that the SHORT stochastic red and green lines are both below the 50 level, also remember that we are in an UPTREND as seen in the monthly timeframe.
Not move to the 4hour timeframe for entry.
In the 4hour timeframe for entry, you will need only the LONG stochastic. You will enter buy as soon as the stochastic touches or goes below the 30 or 20 level for 100 - 150 pips profit. If you are good in marking support and resistants in daily timeframe then you can have your takeprofit and stoplosses clearly market. if you are good in averaging, you dont need stoploss. Enter with a very low lot (the low lot should risk about 0.5 or 1% of equity at 100pips loss) then the second box u can have another entry while the first box still running by the time the second entry gets to 150 pips the first entry will be in profit. THe third entry is a straight win without stress.
You need to practice as this is a simple trading plan. You do just the opposit in a DOWNTREND situation.
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