Stochastic - page 2

[Sergey Golubev]

So, just about this documentation Signals of the Oscillator Stochastic - some traders are using some more signals:

The main line is above some level (50%, 70% or 80%):

• as a confirmation for sell trade - for trend following system
• as a confirmation for buy trade - for breakout systems (breaking support/resistance levels)

The main line is below some level (50%, 30% or 20%):

• as a confirmation for buy trade - for trend following system
• as a confirmation for sell trade - for breakout systems (breaking support/resistance levels)

[Sergey Golubev]

So, as we understand - there are a lot of signals which we can take onto consideration: we can use all of them, or we can use some of them, or just one of them. I mean: there are much much more signals than explained on this link. That is why the traders like this indicator - indicator is very flexible to be used and it can be used for almost all trading systems together.

[Sergey Golubev]

Why we need to know and to remember all the signals from this indicator  especially if we are trading manually? Because this is confirmational indicator and acting as a filter/ Confirmation for some other signal, and filter to filter false signals. It means: main signals (from some other indicator) may not come in simultanious way with this Stochastic.

This is example: the main signal (price is crossing MA on the main chart) and confirmation for buy (3 stoch indicators) which came in almost simultanius way

MetaTrader Trading Platform Screenshots

EURUSD, M5, 2013.06.03

MetaQuotes Software Corp., MetaTrader 5, Demo

not simultanious

But this is exceptional case when confirmation is coming in simultanious way with the main signal from some other indicator.

That is why we need to know all possible signals from Stochastic indicator if we want to use it for manual trading for example.

[Sergey Golubev]

Besides, we can estimate the market condition based on this indicator - read first 3 pages of this thread about howto: Market Condition Evaluation based on standard indicators in Metatrader 5

[Sergey Golubev]

For now - we can describe the trading rules for those 3 Stochastic indicators:

• 34/5/5 (fast stoch)
  
• 55/8/8 (medium stoch)
  
• 100/8/8 (slow stoch)
  

[Sergey Golubev]

So, rules for buy:

• slow stoch (main line) on bar #1 is below 20
• fast stoch on bar #1 is below 50
• medium stoch on bar #2 is below 20
• medium stoch on bar #1 is above 20
• medium stoch main line on bar #1 is above medium stoch signal line on same bar #1
• medium stoch main line on bar 2 < medium stoch main line bar #1

And opposite for sell.

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

For the next few posts - we will descuss about how to trade this setup (or how to use it), and what those rules mean.

[Alain Verleyen]

newdigital:

So, rules for buy:

• slow stoch (main line) on bar #1 is below 20
• fast stoch on bar #1 is below 50
• medium stoch on bar #2 is below 20
• medium stoch on bar #1 is above 20
• medium stoch main line on bar #1 is above medium stoch signal line on same bar #1
• medium stoch main line on bar 2 < medium stoch main line bar #1

And opposite for sell.

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

For the next few posts - we will descuss about how to trade this setup (or how to use it), and what those rules mean.

Thanks for your useful explanation. However if I understand well your last post, you are know talking about a trading system which is outside the scope of this sub forum (technical indicators). In my opinion, it would be better to explain here all sorts of usage of Stochastic (the 3 of documentation and others as you explain above). And create another topic if you (or others) have some trading systems using stochastic.

[Sergey Golubev]

It is what I am doing: explaining about how to use this indicator in manual trading, and inside EAs too (concerning my last post - EA was already created and uploaded few months ago on this thread - so I am using it as an example). Because when some traders are going to Job service to ask for "please code EA for me" so ... some of them had no idea about how to write the order for the development. Besides, what is the system? Idea is not trading system, and good looking indicators on the chart are not trading system ... so ... I will write about it too.

[Sergey Golubev]

newdigital:

So, rules for buy:

• slow stoch (main line) on bar #1 is below 20
• fast stoch on bar #1 is below 50
• medium stoch on bar #2 is below 20
• medium stoch on bar #1 is above 20
• medium stoch main line on bar #1 is above medium stoch signal line on same bar #1
• medium stoch main line on bar 2 < medium stoch main line bar #1

And opposite for sell.

Thus, the most usual rules/signals (most usually used) for this indicator are the following:

- main line of indicator is above or below some level indicating overbough/oversold

or

- main and signal lines are started to move to our direction

or

- main line of indicator is above or below 50

[Sergey Golubev]

so we go :)

Let's discuss the first usually used signals/condition of Stochastic: main line of indicator is above or below some level indicating overbough/oversold

As I said - Stochastic is used as a filter so the traders are using the term 'condition' instead of 'signal' of the indicator. And it is especially related to this first condition: value of indicator is above or below of some level. When and why some traders are using this kind of condition for EAs and for manual trading? They are using it on the following cases:

• technical analysis. If you watch TV (i do not like TV but ... watching just in case ... ) - you can listen something as "this pair is on overbought condition". How do they know it? It is very simple: they attach indicator to metatrader ... may be - they attached Stochastic. So, what is the difference between them and us? They can "read" chart ("read" in direct meaning - same as the book or article), but many traders - can not.
• trading. people are using this kind of condition when they want to filter many false signals. For example, some trader/developer is creating trading system and he is receiving a lot of signals for buy and sell. And some (or most of) the signals are false signals. So, the developers are using this condition to filter (to cut of/to reduce) false signals inside some trading systems.