Stochastic Oscillator Expert Advisor Setup - Setting Up Stochastic Oscillator Expert Advisor

Stochastic Oscillator Expert Advisor Setup - Setting Up Stochastic Oscillator Expert Advisor - A trader can come up with an Stochastic Oscillator Expert Advisor based on the Stochastic Oscillator indicator explained below.

Stochastic Oscillator Expert Advisor rules can be combined with other indicators to come up with other EA Bots that trade using rules based on two or more indicators combined to form a system.

Stochastic Oscillator Technical Analysis Signals

Developed by George C. Lane

The Stochastic Oscillator Indicator is a momentum indicator - it shows the relation between the current closing price relative to the high and low range over a given number of n periods. The Oscillator uses a scale of 0-100 to plot its values.

Stochastic Oscillator Expert Advisor Setup

This Oscillator is based on the theory that in an uptrend market the price closes near the high of price range and in a downward trending market the price will close near the low of price range.

The Stochastic Lines are drawn as 2 lines - %K and %D.

• Fast line %K is the main
• Slow line %D is the signal

3 Types of Stochastics Trading Oscillators: Fast, Slow and Full Stochastics

There are Three types are: fast, slow and full Stochastic. The three indicators look at a given chart period for examples 14 day period, & measures how the price of today's close compares to the high & low range of time period that is being used to calculate the stochastic.

This oscillator works on the principle that:

• In an uptrend, price oftenly tends to close at the high of candle.
• In a downtrend, price tends to close at the low of candle.

This indicator shows the momentum of the market trends, & identifies the times when a market is overbought or oversold.

Technical Analysis & How to Generate Signals

The most common techniques used for analysis of Stochastic Oscillators to generate signals are cross overs signals, divergence signals and over bought oversold areas. The following are the techniques used for generating signals

FX Crossover Signals

Buy signal - % K line crosses above %D line (both lines heading upwards)

Sell signal - %K line crosses below the %D line (both lines heading downwards)

50-level Cross over:

Buy signal - when stochastics lines cross above 50 mark a buy signal is generated.

Sell signal - when stochastic lines move below 50 a sell signal is generated.

Divergence Trading

Stochastic is also used to look for divergences between this trading indicator & the price.

This is used to determine potential trend reversals.

Upward/rising trend reversal - identified by a classic bearish divergence

Trend reversal - Stochastic Oscillator Expert Advisor Setup

Downward/descending trend reversal - identified by a classic bullish divergence

Trend reversal - Stochastic Oscillator EA Setup

Overbought/Oversold Levels on Indicator

Stochastic is mainly used to identify potential overbought & oversold conditions in price movements.

• Overbought values greater than 70 level - A sell signal forms when the oscillator rises above 70% & then falls below this level.

Overbought - Values Greater 70 - Stochastic Oscillator Expert Advisor Setup

• Oversold values less than 30 level - a buy signal is generated when the oscillator goes below 30% & then rises above this level.

Oversold - Values Less Than 30 - Stochastic Oscillator Expert Advisor Setup

Trades are generated when the Stochastic Oscillator crosses these levels. However, overbought/oversold levels are prone to whip-saws especially when forex market is trending upward or downward.