What is Double Stochastic?
The Double Stochastic strategy is composed of two separate Stochastic Oscillator indicators, each of which contains 2 lines: the main line and the signal line. These indicators could be manually added in MetaTrader 5 software. One stochastic, called Slow Stochastic indicator, is used to identify the major trends.
Double Stochastic settings are as follows:
- %K period: 21;
- Slowing: 9;
- %D period: 9.
The other stochastic called Fast Stochastic indicator is set up with shorter time periods and is applied to confirm trading opportunities.
The period settings of the fast stochastic are:
- %K period: 9;
- Slowing: 3;
- %D period: 3.
Forex markets are highly imponderable with dozens of selling and buying signals generated in the same time, causing traders confused if they don’t know what the strong trends are. Ascertaining the reliable major trends and trading the signals in the direction of these trends is the basic principle of trend following strategies, which can effectively help traders avoid false occasions and generate good income by sticking to the wind.
The Double Smoothed Stochastic indicator was created by William Blau. It applies Exponential Moving Averages (EMAs) of two different periods to a standard Stochastic %K.
How to use Double Stochastic?
This forex strategy works best on H1 or D1 chart. We will have to observe the performance of both slow and fast stochastic oscillators to confirm a trading opportunity. When the main line crosses above the signal line in the slow stochastic, an uptrend is present. We now take signals from the fast stochastic. Because the current major trend is bullish, so anytime the main line in the fast stochastic oscillator turns above the signal line, we enter the market with a buying position. Contrarily, if the main lines cross below the signal lines in both stochastic indicators, we enter a selling order.
Please note that you have to skip the signals which are not supported by the major trends. It means that if you see a bullish major trend, for example, but the fast stochastic indicates a bearish trading occasion, we should ignore that signal immediately.
The exit point appears when slow stochastic’s lines cross. You should wait for the candlestick to close before considering the exit point valid.
The pros and cons of the Double Stochastic indicator
Besides the easy-to-use advantage, this technique also helps traders spot more accuracy entries due to the good co-operation between two leading indicators. However, sometimes traders might be confused because of too many unclear crossovers generated by fast stochastic lines. In addition, traders also have to constantly get their eyes on the chart to avoid missing signals.
If you like this strategy, you might also be interested in this Williams Percent Range Strategy
The Double Stochastic is an effective trend seeking technique which helps trader stick to the market trends - the only way to profit substantially. Nonetheless, as we already know, there’s no indicator that could guarantee 100% winning signals, even the most well-developed ones. It is very necessary for us to combine this system with basic technical trading knowledge and use higher time frame like 1-day to collect high-quality signals.