How to use Stochastic tool and how to use stochastic indicator in Forex
The Stochastic Oscillator is an oscillator that compares the closing price to the price range of a certain product over a certain period. The Stochastic Oscillator consists of 2 lines: the main line is called %K; the remaining line %D is the moving average of %K. Usually the %K line on the chart is drawn solid and the %D line is dashed.
To install this tool is very simple, you just need to follow these steps:
Open MT4 trading platform
Then select Insert -> select Indicators -> select Oscillators -> select Stochastic Oscillator
How to trade according to the basic Stochastic:
Based on the 2 overbought and oversold levels of Stochastic, the analysis gives trading signals at these 2 oversold or overbought zones.(Read more : priceaction / ema and fibo, macd)
That is, when the RSI crosses below 20 (oversold area), and see the %K line crosses the %D line up, then we execute a Buy order, quite simple.(Read more : the future of Bitcoin )
And vice versa, when Stochastic crosses above 80 (overbought area), and sees the %K line crossing the %D line down, then we execute a Sell order.
How to use Stochastic by divergence
For bearish to bullish reversal:
+ The bottom of the price falls, that is, the following bottom is lower than the previous one.(Read more : forex investment legal)
+ Stochastic bottom is bullish, meaning the latter bottom is higher than the previous one
Conversely, for bullish to bearish reversals:
+ The peak of the price increases, that is, the next peak is higher than the previous one
+ Stochastic’s peak is decreasing, that is, the next peak is lower than the previous one
2 numbers 80 and 20 are very important
When it exceeds 80, sell: entering the overbought area, it does not mean that the price is overbought, but it says that the price is too strong.
When it breaks down to 20, buy: go and the oversold zone, it goes into the strong sell zone and maybe stronger, the force becomes strong, not oversold and can sell more.(Read more : professional trader)
Because it is used according to MA, it will be suitable for long frames: it is best for daily.