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    Thread: How To Use Stochastic Oscillator For Better Entry / Exit

    1. #1
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      Default How To Use Stochastic Oscillator For Better Entry / Exit

      Hello again forum.mt5 members - time to discuss something interesting from our standard indicators. Nah, standard indicator is still the best for me because it's already proven by pro traders, so we just need to understand how to use it.

      As a momentum indicator, stochastic shows the times when price movements have reached an overbought or oversold state.

      Stochastic is a simple oscillator indicator that measures momentum. This indicator was created by George C. Lane in the late 1950s. As an oscillator momentum indicator, stochastic will indicate times when the price movement has reached an overbought or oversold state. Because this indicator has been used for more than 50 years, of course its accuracy has been tested, therefore the stochastic oscillator is still used by traders of stocks, forex, futures and commodities.

      There are many variations of this indicator but the most frequently used is slow stochastic. Slow stochastic consists of two lines of curves that resemble moving averages (one of them is indeed a moving average). The movement of the curve is limited by level 0 to 100 which shows the percentage value of the indicator. The 2 lines of the curve are% K which are usually displayed in blue, and the% D line is displayed in red.

      % D is the moving average of% K so that the movement is slower (lagging). Traders will pay attention to the movements to these two curve lines to identify the behavior of the current trend. This oscillator indicator signals when the momentum of price movements is weakening which is a sign of a correction or a change in trend.



      As shown in the picture above, the momentum that causes a change in the direction of the short-term trend occurs when the 2 lines of the curve intersect (crossing). You get signals when the blue curve (% K) intersects the red line (% D). However, you can increase the probability of these signals in 2 ways :

      1. Look at the intersection of curve lines at extreme levels
      You don't have to respond to every signal that appears, but take the signal that has the strongest probability. As for the stochastic oscillator indicator which is limited by levels 0 to 100, usually overbought conditions occur if the% K curve has exceeded level 80, and oversold conditions occur if the% K curve line has been below level 20.



      As shown in the example of EUR / JPY above the strongest signal occurs at the intersection points (crossing) the lines of curves% K and% D in the overbought and oversold area. You can sell in overbought and buy when oversold.

      2. Adjust your entry with the trend at a higher time frame to avoid false signals
      When the price is trending strongly (eg uptrend), then at a lower time frame the stochastic oscillator indicator will show an overbought state, and that is a false signal. If your sell entry is likely to be fatal because of the strong uptrend. While the uptrend is still strong, we recommend that you wait for the lower time frame stochastic oscillator to show oversold conditions as a buy signal. In this case the stochastic oscillator indicator shows the right momentum for the entry.


      ================================================== =======

      Really appreciated if you give some of your opinion about Stochastic Oscillator, have you ever use it?, or how is your expereince about it?.


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      In a ranging or sideways (Daytrading type) market condition We can use Stochastic Oscillator as an Overbought/Oversold alert signal BUT if the market in a High momentum/ very strong Trending the Oversold alert is a SELL Signal when the strong Bearish market and the Overbought signal is a BUY signal when the Bullish market condition.

      Usually the Stochastic Oscillator is for measure the cycles of the market and the best way to use is for a looking the Divergence/Convergence between the Stochastic Oscillator with the market as your alert for the market turning point or the trend reversal because the inventors from this tools George C. Lane is recommended for this way.

      Simple Is The Best


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      Feny (12-07-2018)

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      Default Re: How To Use Stochastic Oscillator For Better Entry / Exit

      Quote Originally Posted by Arief Makmur View Post
      In a ranging or sideways (Daytrading type) market condition We can use Stochastic Oscillator as an Overbought/Oversold alert signal BUT if the market in a High momentum/ very strong Trending the Oversold alert is a SELL Signal when the strong Bearish market and the Overbought signal is a BUY signal when the Bullish market condition.

      Usually the Stochastic Oscillator is for measure the cycles of the market and the best way to use is for a looking the Divergence/Convergence between the Stochastic Oscillator with the market as your alert for the market turning point or the trend reversal because the inventors from this tools George C. Lane is recommended for this way.


      Oh i see, so we can use covergence and divergence as our "edge". Based on your experience? how is the accuracy? is it big enough?


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      Default Re: How To Use Stochastic Oscillator For Better Entry / Exit

      Quote Originally Posted by Feny View Post
      Oh i see, so we can use covergence and divergence as our "edge". Based on your experience? how is the accuracy? is it big enough?
      Good question Feny, the accuracy approximately 60% of the time the Convergence / Divergence from the Stochastic Oscillator is accurate because if you want to increase your accuracy up to 90% you need to study the Time Analysis.

      Please remember all this stuff is only Our secondary analysis the first and the most important is the Price action itself, this stuff such indicators and the Time analysis is only supporting Our judgement and analysis from the price action itself in the other words its just only for confirmation from the Price Action itself, e.q. is that the price will continue their trend or the price will turning point or reverse from their previous trend.
      Simple Is The Best


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