Forex Stochastic Strategy Explained With Examples

Forex Stochastic Strategy Introduction:

In this blog post, I’m going to teach you how to use a stochastic indicator to improve your trading. I don’t want to waste your time, so I’ll keep this short and packed with information!

The stochastic oscillator is a tool that traders use to help them make decisions. It is used by traders to measure the momentum of security. It was developed by George Lane. The stochastic oscillator has a range from 0-100, and you can see that there is an upper mark at 80% and a lower mark at 20%.

When the lines move above the 80%, this indicates that the market is in overbought condition and we should be looking for a sell signal. When the lines move below the 20%, the market is oversold and we should be looking for a buy signal.

There are many ways to use stochastic, but this is one basic way. I think there are better ways to do it, but in this article, I am going to show you a powerful method that will help you dominate the forex market using this indicator.

The Forex Stochastic Strategy Method:

Here is the outline of what you need to do:

1. Identify the trend – to filter out bad trades

2. Use the oversold and overbought technique

Step 1: Identify the trend

The first step in using the Forex stochastic strategy is to identify the trend. You can do this by using the exponential moving average 21 indicator. This will help you to see the overall trend of the market so that you can make more informed trading decisions.

Buying/Bullish Market:

When the EMA(Exponential Moving Average) 21 is below the price, it shows that the market is going up. So we are looking for a buy signal. The buy signal will come from the stochastic. We are only using the trend to filter bad trades (trades that go against the trend). Get the idea? I’ll explain about the stochastic later on.

Example 1:

Example 2:

Selling Market:

When the EMA21 is above the price, it means that the market is trending down. This gives us a sell signal.

Example 1:

Example 2:

Step 2: Stochastic – Cross Over

If the trend is going up, then look for a stochastic Cross Over (blue line cross above the red line). This means that it’s time to buy.

If the trend is going down, look for a stochastic Cross Over (the blue cross below the red line). When you see this, it’s time to sell.

Now, see how the stochastic work:

For Buy:

Example 1:

The market is doing well. This can be seen by the Stochastic Cross Over.

Example 2:

1. The trend is going up.

2. The stochastic has crossed over.

For Sell:

The market is trending down, so we’ll sell when the Stochastic indicator crosses over. Another cross-over will signal a second sell entry. That’s it! Congratulations on reaching this point.

The Forex Stochastic Strategy Bonus Method:

Here is another way to use the stochastic to identify when the market might reverse. This bonus method can help you detect if people are selling or buying early.

Usually, when the price is going up and the stochastic is going up too, that’s normal. But if the price is going up while the stochastic is going down, that’s called divergence and it might mean that people are starting to sell. We’re looking for a buy signal when divergence happens on the lower side.

Example 1:

Example 2:

We are looking to sell when the divergence occurs on the upper side.

Example 1:

Example 2:

I recommend you to use this signal together with other technical analysis techniques to confirm its accuracy.

The Forex Stochastic Strategy Method In A Nutshell:

This is a basic outline of what you will do with this method:

The Forex Stochastic Strategy Method is a basic outline of what you will do with this method:

1. Filter bad trades by identifying the trend.

2. Look for a stochastic signal that says the stock is oversold for buying, or overbought for selling.

3. Remember to use divergence to your advantage when trading.

I hope this was helpful and you enjoy reading more about Forex Stochastic Strategies!