I use my Stochastics with 20,9,2 setting. I started using the 20 because of you. You have to wait for confirmation because it can turn on the dime! The idea is the same though. Thanks for all that you do! You said friend short when it is below 80 , but many times it reverse from there and go again in overbought area, it can happen 3 4 times. Hey Rayner! Thanks for your tutorial! Right after I read your tutorial here, I come up with something! Using your Osci set up and technique, I can combine it with breakout system and ride the massive trend after that.
Your YT Channel is also inspired me to create my own channel and share my experiment about Osci breakout. I am trading in the Saudi market only does it work for me and is the analysis one for all currencies and thank you. Go long when it crosses above 20 and short when it crosses below But in the section where we can use MA with Stoch, when in downtrend, and price at resistance level, go short when the stoch is below Then why not in 80 level?
One of the best explanation that I could have received on the correct way to use Stochastic. All the clutter in my mind is gone. Thanks for piecing the article in such simple language!!!!!
I use stochastic with Bollinger bands, both default settings. Nice technique. I like to code it in MT4, can explain how to enter the market and determine stoploss and take profit? Many thanks. Hi Rayner.. Some trader use Stochastic together with RSI. Whenever Stochastic lower than RSI it is sign of reversal. Any idea? I bought your book price action trading wonderful book, l learned a lot of things and l m still learning by following your you tube channel.
Thank you sir. You are really generous and honest. You share your knowledge for free. Very educational and easy to understand and back test …. Rayner you the best.. Thank you Rayner for your knowledge. May abundance be showered on you as you share your knowledge! Thanks Rayner!!!! You have definitely gave me a full understanding how to use the MA along with the stochastic indicator. Thanks for your stochastic trading insights Rayner!
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The Bottom Line. Stochastics are used to show when a stock has moved into an overbought or oversold position. Article Sources. Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts.
Although the stochastic indicator can be used in any financial market, it is especially popular among Forex traders and this article will focus on the Forex market. When these two lines cross, traders should look for an approaching trend change. This is considered a bearish signal, while the opposite of this is considered bullish. The default setting for the stochastic indicator is 14 periods and it can be applied to any timeframe; such as daily, weekly, or even intraday.
The indicator measures the last 14 periods to find the highest high 1. With the current closing price of 1. As a range-bound indicator, the stochastic oscillator can be used to identify overbought and oversold market conditions. A reading over 80 reflects overbought market conditions, and a reading below 20 reflects oversold market conditions.
The stochastic indicator itself can range only from 0 to , no matter how fast the price of the underlying currency pair changes. In a standard period setting, a reading above 80 indicates that the pair has been trading near the top of its trading range over the last 14 periods, while a reading below 20 indicates that the pair has been trading near the low of its trading range over the last 14 periods. It is important to note that oversold readings are not necessarily bullish, just like overbought readings are not necessarily bearish.
During a sustained uptrend or downtrend, the stochastic indicator can remain in the oversold or overbought area for a long period of time. It is, therefore, advised to always trade in the direction of the trend and wait for occasional oversold readings during uptrends and overbought readings during downtrends.
As designed by Lane, the stochastic oscillator presents the location of the closing price of a stock in relation to the high and low range of the price of a stock over a period of time, typically a day period. Lane, over the course of numerous interviews, has said that the stochastic oscillator does not follow price or volume or anything similar.
He indicates that the oscillator follows the speed or momentum of price. Lane also reveals in interviews that, as a rule, the momentum or speed of the price of a stock changes before the price changes itself. This signal is the first, and arguably the most important, trading signal Lane identified.
The stochastic oscillator is included in most charting tools and can be easily employed in practice. The standard time period used is 14 days, though this can be adjusted to meet specific analytical needs. The stochastic oscillator is calculated by subtracting the low for the period from the current closing price, dividing by the total range for the period and multiplying by By comparing the current price to the range over time, the stochastic oscillator reflects the consistency with which the price closes near its recent high or low.
A reading of 80 would indicate that the asset is on the verge of being overbought. The relative strength index RSI and stochastic oscillator are both price momentum oscillators that are widely used in technical analysis. While often used in tandem, they each have different underlying theories and methods.
The stochastic oscillator is predicated on the assumption that closing prices should close near the same direction as the current trend. Meanwhile, the RSI tracks overbought and oversold levels by measuring the velocity of price movements. In other words, the RSI was designed to measure the speed of price movements, while the stochastic oscillator formula works best in consistent trading ranges. In general, the RSI is more useful during trending markets , and stochastics more so in sideways or choppy markets.
The primary limitation of the stochastic oscillator is that it has been known to produce false signals. This is when a trading signal is generated by the indicator, yet the price does not actually follow through, which can end up as a losing trade. During volatile market conditions, this can happen quite regularly. One way to help with this is to take the price trend as a filter, where signals are only taken if they are in the same direction as the trend.
George Pruitt.
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