Stochastic Forex System - Combining Stochastics with Different Types of Indicators in Forex
This tutorial should be called: Combining Stochastics with other Indicators, but Stochastic System sounds real nice.
Stochastic Oscillator technical indicator can be combined with other indicators to form a trading system. For our examples we will combine it with:
- RSI
- MACD
- Moving Averages Technical Indicator
Example 1: Stochastic System
Sell Signal Generated using Stochastic System
From our system the sell signal is generated when:
- Both Moving Averages are moving down
- RSI is below 50
- Stochastic moving downward
- MACD heading downwards below centerline
The sell signal was generated when all these forex rules were met. The exit forex signal is generated when a signal in opposite direction is generated i.e. When the indicators reverse.
The good thing about using such a system is that we are using different types of indicators to confirm the trade signals & avoid as many whipsaws as possible in the process.
- Stochastic - is a momentum oscillator indicator
- RSI- is a momentum oscillator indicator
- Moving Averages Technical Indicator- is a trend following forex indicator
- MACD- is a trend following forex indicator
It is very useful to combine more than one forex indicator, as a combination of signals is better than relying on just a single forex indicator. The forex trading technical indicator combinations reinforce each other, and cancel out false whipsaw forex signals.
A trend following indicator helps one to see the overall picture, while using more than one momentum technical indicator gives better & more reliable entry and exit points for trading forex.
The forex indicators combinations & their signals help to decipher a lot of the market activity.
Example 2: Stochastic System
Buy Signal Generated using Stochastic System
For this example the forex trend is clearly upward, but at some point there were a few forex whipsaws generated by the stochastic oscillator indicator, can you spot them? - So the question is how can one avoid trading these forex whipsaws?
Well, the answer is that by looking at the other technical indicators such as MACD indicator a trader could have avoided the whip saw, even the MACD technical indicator had not given a crossover signal although it was very close to the zero center-line level, at the same time the gradient at which moving averages technical indicators turned was not so sharp as to warrant a decisive forex market trend reversal. Well the thing is that it’s not so obvious when it comes to recognizing forex market whipsaws: it's a skill that takes some time but after some time you can spot whipsaws from a mile away.
One tip is that as long as MACD indicator is above zero center-line even if the MACD lines are moving downward then the trend is still upwards. As you can see from the above example MACD indicator never went below zero line and afterwards the upward trend continued with the MACD trade indicator maintaining above Zero line & continuing to move upward.
During ranging forex markets Stochastic Oscillator indicator will give the fastest forex signals which are prone to whipsaws. This is why stochastic indicator is best combined with other indicators & the forex signals traded are confirmed by another one or two other indicators.
What is a Trade Plan? - Written Plan Template Example
Alternatives: Automated EA Robots or Copy Paste Signals
