Stochastic + EMAs

Stochastic Oscillator is a famous leading indicator developed by George Lane and widely applied to confirm trends’ momentum. Meanwhile, Exponential Moving Average (EMA) is the most popular leading beacon which is very proficient in detecting trends and trading opportunities. Hence, the combination of these two indicators makes a comprehensive and effective trading system. Today, we would like to guide you in detail how to use these two beacons to gather Forex signals.

Introduction

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
signals. The setting of this strategy is as follows:

  • EMA with 2-day period
  • EMA with 4-day period
  • Stochastic Oscillator with the setting of 5,3,3
The shorter-term EMA 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 the system to trade Forex

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.

Stochastic + EMAs

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.

Stochastic + EMAs

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
    territory (80/20).
Pros and cons of the strategy

A series of advantages have been detected when we test the strategy. First, it’s obvious that this strategy is very easy-to- use and easy to set. Secondly, like most trending systems, the strategy is comprehensive, helping filter out false trading occasions effectively. Finally, as a trending tool used on a large time frame, it enables traders to collect dozens of trading opportunities thanks to its useful trend-sticking capability.

Nevertheless, this technique has some disadvantages. First, it necessitates traders to constantly observe the trading platform to seek for signals. And, secondly, because of being used on a large time frame, the technique requires a high level of patience.

Conclusion

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.
See also:
‘Sardar’ forex trading strategy
‘Sardar’ forex trading strategy
08.11.2018
Investment strategies