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