Stochastic indicator
Stochastic is one of the most popular indicators used in technical analysis of the Forex market, so this tool requires special attention.
Despite the ease of use and configuration, in most cases it provides fairly accurate signals for entering the market.
Usually this script is included in the set of indicators in any trader’s trading terminal, but if you don’t have it, you can download the file via a direct link.
Download the stochastic indicator.
The program is installed according to the standard scheme described in the article “How to install an indicator”.
Work principles.
The operation of the instrument is based on supply and demand, or, to be more precise, on the overbought and oversold zones that are formed during the operation of the foreign exchange market.
Any product, including currency, has a certain price, which is influenced by the number of people willing to sell it (supply) and the number of potential buyers.
In Forex, these two factors are expressed by placed buy and sell orders. When the price rises, an upward trend , the basis of which is the predominance of purchase orders over the supply of currency; gradually a moment comes when, due to the high price, the trend enters the oversold zone.
It is at this time that the probability of a trend reversal increases, the price reaches its peak and rushes down.
Now everything is happening in the opposite way, the market is dominated by a downward trend , which continues until the price enters the oversold zone and again turns upward.
Setting up the Stochastic indicator and operating features
The stochastic indicator works normally with standard settings, but if you wish, you can still customize its parameters.
Period %K – default value is 5, the number of periods that are used when calculating stochastics.
Slowdown – adjusts the smoothness, the standard settings are set to 3, decreasing the parameter speeds up the speed, increasing it slows it down.
Period %D – default value is 3, shows the period of the moving average along the %K line.
The first level - refers to the oversold zone, set to 20.
The second level - limits the overbought zone, set to 80.
The only parameters that should be changed in the stochastic settings are the last two levels, they can be moved to 10 and 90, which will reduce the number of false signals when trading at the entrance.
Stochastic trading
Trading using this oscillator is quite simple; the signals for opening trades are:
To buy – the blue line (main) crosses the red line from below (signal) upward and both lines begin to exit the oversold zone.
For sale - the blue line crosses the red line from top to bottom and moves in a downward direction.
Read more about trading using this oscillator in the article "Strategy on the Stochastic indicator" - https://time-forex.com/strategy/strategiy-stohastik