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🎱How to trade the Stochastic Indicator like an Expert. What is the right way and what is the wrong way of using the Stochastic Indicator: 🎱
What is Stochastic?
The stochastic indicator was developed by George Lane in the 1950s.George Lane, a Chicago futures trader and early proponent of technical analysis, developed the momentum indicator in the late 1950s. When asked to describe the indicator, he said “It doesn't follow price, it doesn't follow volume or anything like that. It follows the speed or the momentum of price. As a rule, the momentum changes direction before price. If you visualize a rocket going up in the air—before it can turn down, it must slow down. Momentum changes direction before price."
And wouldn’t you agree?
How does it look on your chart:
It is two moving averages passing each other. The is range between 100 and 0 Overbought when it is above 80, oversold when it is below 20. It sounds so easy to understand that when it is below we buy, above we sell.
What are the purposes of the stochastic indicator?
The stochastic is designed to signal support and resistance levels.
The stochastic works best in “consistent” trading ranges.
Stochastic can be combined with other technical indicators.
⭐ Please be aware that this indicator is known to produce fake/ false signals.
So....
What I suggest NOT doing:
With above 80 meaning overbought, you will tend to enter a short position and with below 20 oversold, you will assume it is a buy position. But there are traps with this equation. Often times the price doesn’t actually follow through, which may result in a losing trade. Where there is an increase in this scenario during volatile periods.
The logic behind it is wrong. The stochastic indicator is to generate the movement before it happens. The indicator is trying to catch a reversal point before it happens, which is illogical.
⭐ Don’t try and gamble when will be the retracement before getting the signal
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How do I recommend trading using the Stochastic Indicator :
By trading the indicator with trends. Trends can be defined in many different ways. I, personally, prefer the Lower and Highs:
Bearish trend- LH and LL
Bullish trend- hh and HL
Some traders preferred:
Moving Averages:
Learn more about moving averages - [ Ссылка ]
MACD:
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Fibonacci:
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Tricks of applying stochastic tool for maximum results:
Stochastic is best to use in ranges. First of all, when trends start slowing down then there is a good possibility for a range. With the increasing of a range, the usage of the stochastic indicator will be of more value and will provide better odds of being right in your trading decision.
⭐Please note: There are no guarantees in making profits with every trades.
How does Divergence work with the Stochastic indicator:
A divergence occurs when the indicator doesn’t move in-line with a price. For example, the price makes a new high, but the stochastic fails to reach a new high. Or, the price makes a new low, but the stochastic fails to make a new low.
When there is a bearish divergence, wait for the price to break lower before buying short.
When there is a bullish divergence, wait for the price to break higher before entering a buying position.
Click here to watch the secrets of Divergence (the killer tool)
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To learn more about using the Divergence on your charts
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I would love to hear your feedback!
Do you use Stochastic on your charts and how do you use it?
Thank you as always for watching my video. If you enjoyed it please hit the like button and leave your feedback in the comments. You can also share with your family and friends to increase their knowledge as well.
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#stochasticoscillator #daytrading #stochasticindicator #movingaverges
Yours to your success,
Vladimir Ribakov
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