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%):
The main line is below some level (50%, 30% or 20%):
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
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.
For now - we can describe the trading rules for those 3 Stochastic indicators:
So, rules for buy:
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.
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.
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
- main and signal lines are started to move to our direction
- main line of indicator is above or below 50
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: