Learn Stochastic Indicator Trading Strategy

This learn course will talk about how to come up with a trading strategy that is based on the stochastic indicator. This stochastic strategy will be used by stock traders to trade trending markets. This strategy is simple to trade with & simple to follow. Using the stochastic oscillator indicators traders can use this indicator to come up with a strategy that will be used to identify trends.

Trend

The various techniques used to figure out & identify trends.

·An upwards trend is when the trading market is moving in an upward general direction and the price keeps making higher highs and higher lows.

·A downward trend is when the trading market is moving in a downward general direction and the price keeps making lower lows and lower highs.

This is the first thing to look for when determining the trend, a trader can then use another method to confirm the market trend. For example illustration a trader might use a trend line & if the trend-line direction is up the trend is then upward but if the trend line direction is down then the trend is downwards.

A trader can also use the 200 day moving average to determine the market trend. If the price is above the 200 day moving average then the market trend is regarded as an upward bullish trend. If the price is below the 200 day moving average(MA) then the market trend is considered as a downwards bearish trend.

Stochastic Trade Strategy

After determining the trend the Stock Index trader will then use the stochastic indicator to ascertain where to open a buy or a sell indices trade. For this strategy a indices trader will use the overbought & over-sold levels to detect when to open positions. Oversold level is the 20 mark on the stochastic & the overbought level is the 80 mark on the stochastic oscillator indicator.

Up-wards Stock Trend - in an upwards trend the trader will wait for stochastic indicator to pull-back & move downwards upto the over-sold levels. This will mean that there is a short term market retracement & a stock index trader will wait out for the best opportunity to buy after this pullback. Once the stochastic oscillator gets to the oversold level it will not stay there for long because the trend is upwards and this will only be a temporary price pull back.

A trader will open a buy trade once the stochastic oscillator leaves the oversold level and starts heading upward.

Downwards Trend - in a downwards trend the Stock Index trader will wait out for stochastic indicator to retrace upwards & move upwards up to the overbought levels. This will mean that there's a short-term market retracement and a stock indices trader will wait for the best opportunity to sell after this upward retracement. Once the stochastic oscillator gets to the over-bought level it will not stay there for long because the trend is downwards and this will only be a temporary price retracement.

A trader will open a sell indices trade once the stochastic oscillator leaves the overbought level and starts heading downward.

A trader can use this strategy to find the best place where to open a trade after a price retracement. This will increase the chances and odds of the Stock Index trader becoming more profitable because the transactions will be opened at the optimum ideal point - that is after a price retracement. This increases what is known as the risk reward ratio of the opened trades because the chances or the likelihood of the trade positions retracing and pulling back further after these levels are minimized because the market is already oversold in an upwards direction trending market or overbought in a downwards direction trending market.

A trader should then set their stoploss orders a few pips below where they opened a buy trade or a few pips above where they opened a sell indices trade. The trader then will determine where to takeprofits based on a favorable risk : reward ratio, or they can set the take-profit at a specified number of pips based on the rules of their trading plan.

Study More Courses:

Trade Stock Indices

Learn Stochastic Indicator Trading Strategy

Trend

Stochastic Trade Strategy