Any Forex trader surely has heard about a very famous saying : “The trend is your friend". It is undeniable that trend following is always considered the best and most profitable trading strategy by global traders and investors. However, the fact is that there are still many traders who are quite equivocal about how to define the trends. Today, we are going to introduce to you a popular trending strategy named “Double Stochastic” and how to apply it to seek for the reliable trends and trading signals.
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 4 software. One stochastic, called “Slow Stochastic”, is used to identify the major trends. Its settings are as follows :
- %K period: 21
- Slowing: 9
- %D period: 9
The other stochastic called “Fast Stochastic” 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.
How to trade with the Double Stochastic
This system 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 strategy
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.
The Double Stochastic system 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.