Stochastic Oscillator Explained
In technical analysis of securities trading, the stochastic oscillator is a momentum indicator that uses support and resistance levels. Dr. George Lane developed stochastic indicator in the late 1950s. The term stochastic oscillator indicator refers to the point of a current price in relation to its price range over a period of time.
This method attempts to predict price turning points by comparing the closing price of a security to its price range.
How to combine the best Indicators?
Every professional Forex strategy always has at least one leading indicator and one lagging beacon. As
mentioned above, the Exponential Moving Average (EMA) here is responsible for identifying tradable trends
and entering occasions, while the function of the Stochastic Oscillator is to confirm the reliability of spotted
The setting of this strategy is as follows:
- EMA Indicator with 2-day period;
- EMA Indicator with 4-day period;
- Stochastic Oscillator with the setting of 5,3,3.
The shorter-term EMA Indicator which is very flexible will determine possible entries, while the longer-term one will highlight tradable trends, helping eliminate false signals.
So far, this technique has generated more than 2500 pips, with a win-rate confirmed at 83.27% after being carefully tested by us over the last 12 months with +200 signals.
How to use Combined Indicators in Forex Trading
The technique works best on the 1-day chart and can be applied to all currency pairs. The above-mentioned indicators are available in Metatrader 4, you just need to establish as the guide.
A bullish opportunity is determined when:
- The EMA (2) turns above the EMA (4);
- Stochastic Oscillator’s lines are below the 50 level.
Conversely, a bearish trading occasion is defined when:
- The EMA (2) crosses below the EMA (4);
- Stochastic Oscillator’s lines are above the 50 level.
There are some important notes when using this system as follows:
- Only one position should be entered at a time;
- The pump candlestick must be fully closed to confirm a signal valid;
- The stop-loss level should be set of 30 pips, while the take-profit could be established up to 90 pips
Besides, the order should be exited when the leading indicator enters into the overbought/oversold
If you like this strategy, you might also be interested in this Bollinger Bands Strategies
Pros and Cons of Indicator Combination
- It’s obvious that this strategy is very easy-to- use and easy to set;
- Helping filter out false trading occasions effectively;
- Enables traders to collect dozens of trading opportunities thanks to its useful trend-sticking capability.
- Necessitates traders to constantly observe the trading platform to seek for signals;
- Technique requires a high level of patience.
With a lot of advantages mentioned above, this comprehensive trend-following strategy has shown itself to be a very beneficial Forex system. Besides, its 83.27% win-rate also puts it into our top recommendation list. We believe that you will find the strategy a perfect companion given strictly following its guidance. However, never forget that there is no peerless system which can guarantee a 100% win-rate, hence, always remember to apply risk controlling and psychological managing methods along with the strategy to make long-term returns.