Trading strategies stochastics

Trading strategies stochasticsTrading Strategies. Stochastics

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Introduction

This method requires no analysis. It refers to an indicator, the stochastic. It is bounded, meaning that it oscillates between 0 and 100. Two other lines are drawn, representing areas of overbought and oversold. The overbought zone can be placed at 70 or 80. At 70, there will be a larger number of signals, but there will be many false signals. At 80, it will be possible to take big movements. This also applies to the oversold zone which is placed at 20 or 10.

Application of the method

Entry point . This is very simple. When the stochastic curve enters in the overbought zone, place a sell order if the curve gets out of the overbought zone. This is the opposite for the buy order.

Stochastics an accurate buy and sell indicator

Stochastics an accurate buy and sell indicatorStochastics: An Accurate Buy And Sell Indicator

George Lane developed stochastics. an indicator that measures the relationship between an issue's closing price and its price range over a predetermined period of time.

Fourteen is the mathematical number used in the time model, and it can, depending on the technician's goal, represent days, weeks or months. The chartist may want to examine an entire sector. For a long-term view of a sector, the chartist would start by looking at 14 months of the entire industry's trading range. (For more insight on chart reading, see Charting Your Way To Better Returns .)

Jack D. Schwager, the CEO of Wizard Trading and author of some the best books written on technical analysis, uses the term "normalized" to describe stochastic oscillators that have predetermined boundaries both on the high and low sides. An example of such an oscillator is the relative strength index (RSI) which has a range of 0-100, and are set at either the 20-80 range or the 30-70 range. Whether your looking at a sector or an individual issue, it can be very beneficial to use stochastics and the RSI in conjunction with each other. (For more, see Ride The RSI Rollercoaster and Exploring Oscillators and Indicators: RSI .)

Trading the stochastics indicator

Trading the stochastics indicatorTrading The Stochastics Indicator

I used to think only price bars could predict the future. I started as a novice, experimenting with every indicator in the book. I could never get the markets to match my mathematics, so I finally gave up and became a pattern reader. In fact, my early writings are so pattern-centric they appear intolerant of all other trading techniques.

I've had a change of heart in recent years because of a tool that's saved my neck on a ton of trades -- the overused and underappreciated stochastics.

What exactly is the stochastics oscillator? It may seem like a simple question, but the answer isn't. The term describes a mathematical process that has an infinite progression of random variables. Let's dumb it down a bit. Stochastics measures how a market closes each price bar relative to its range over time.

This is urgent information for all types of traders. Scalpers use it to read the tempo as money flows through their one-minute charts. Investors use it to identify cycles as weekly stochastics alter the balance of power. But this valuable tool won't give up its secrets easily, and it requires thoughtful interpretation.

The settings you choose don't matter because stochastics print valid patterns with any set of inputs. Different settings will emit different levels of noise in the subsequent output. For example, notice how the five-, 13- and 21-day settings on the PetsMart chart affect crossovers at key turning points.

The approach here is to match your inputs with your trading style. For example, daytraders capitalize on subtle shifts in market direction and will benefit from short-term settings. On the other hand, long-term settings help position traders avoid false signals.

Many traders get fooled when stochastics flip to an extreme because they look for a reversal instead of trend continuation. Ironically, the most dynamic price movement often takes place right after these levels are breached. So how do you avoid bad signals and use stochastics for its intended purpose? Look at the unique patterns.

The stochastics middle ground tells you the trend is your friend. Watch when the fast line pulls away from the slow line in this zone. This reveals increasing momentum in the direction of the short-term trend.

How can you use this information? Look to buy on the dip (rising) or sell on the bounce (falling) as long as the indicator doesn't roll over. One effective variation of this pattern is a 1-2-3 move where the indicator thrusts out of one extreme, pulls back a little and then thrusts again.

Take advantage of the price surge when stochastics break into an overbought or oversold level. Watch for the fast line to thrust away from the slow line right here. This tiny signal often corresponds with a final burst of buying or selling before a market reverses or goes flat. It corresponds with the profitable fifth wave parabola in Elliott Wave Theory.

Stand aside when stochastics flatline across the top or bottom of the indicator plot, but act quickly when they start breaking in the other direction. This Mesa reversal signal is often timed perfectly with the break of a key support or resistance level. One problem is you can't tell how far a move might carry from the indicator alone. Look at the price pattern to find natural targets for the subsequent swing.

My favorite oscillator patterns are double-tops and double-bottoms. As with price bars, I look for a lower second high to signal a top, and a higher second low to signal a bottom.

Be patient when this pattern develops and let the lines drop away from extreme levels to confirm the signal. This pattern is similar to the Mesa reversal described above, but with one key difference -- it often triggers more follow-through on the subsequent pivot because it reflects more underlying divergence.

Trade77;a profitable scalping strategy revealed

Trade77;a profitable scalping strategy revealedTrade77; A Profitable Scalping Strategy Revealed

Hello Traders, I’m Mani and I’m the writer of Trade 77 section, please follow me on twitter for further updates.

This is one of my personal scalping methods and I call it 5 Minute Silence Time.

3. 80 and 20 levels on the stochastics indicator

4. Profit target are 7 pips and 10 pips

5. Stop loss is 15 pips

How to Trade:

General rule of trading is to trade only once a day and after 15:00 New York time. After 3 pm we wait for stochastics to go above 80 or below 20 and exactly at the close of that candle we will go short or long respectively.

Look at the chart below, this was the previous signal for last day:

This is another example of this method:

There is another rule here: If at 15:00 stochastic was already above 80 or below 20 then you should wait for it to go around 60 (for the first case) and go around 40 (for the second case) and then wait for a buy or sell signal.

This is called Stochastic neutral zone in this method, so if stochastic was already in the strike zone then you should wait for it to go in the neutral zone and then wait for a signal.

Here I have to note that all signals are based on K% in stochastics, so you should wait for the K% to go above 80 or below 20 for a signal.

This method works great in low volatility market, I choose after 15:00 NY time because of this issue. So we can use this method whenever we find out price action is narrow and volume is too low such as this week and also holidays. I will write about my general idea about this issue later.

Comments are open so if you have got any ideas and opinions please do not hesitate to write it down.

Learn forex asimple stochastics strategy

Learn forex asimple stochastics strategyLearn Forex: A Simple Stochastics Strategy

Article Summary: Creating a Forex trading strategy does not have to be a difficult process. Today we will review a simple Stochastics strategy for trending markets.

When choosing a trading strategy, new traders often become confused by all the variables and indicators available to consider. Ultimately the key to trading success is finding a simple strategy that you understand, and have the ability to replicate. Today we are going to review the basics of creating a simple strategy by finding the trend then applying the Stochastics Oscillator.

Find the Trend

Before we enter into any trade, we need to find market direction by trend identification. Below we have the EURGBP on a 4Hour Chart. We can see the pair is making new highs while establishing higher lows. This is the first sign that the EURGBP is trading in a strong uptrend. This analysis can be confirmed by the use of a 200 SMA. Traditionally traders are bullish when price is above the 200 SMA and bearish if price resides under the indicator.

Given the information above traders should look to buy the EURGBP. If the trend continues, prices are expected to make higher highs.

Learn Forex EURGBP 4Hour Trend

(Created using FXCMs Marketscope 2.0 charts)

Entries with Stochastics

Once market direction is identified, we can then use an indicator to enter into the market. Below we can see the Stochastics (SSD) Oscillator on a 1Hour chart. Since we are only looking to buy in an uptrend, it is important to identify areas where the market is oversold. The Stochastics indicator marks this with the 20 level running horizontally along the indicator. Traders looking to buy a retracement can then enter the market when then %K value crosses above the %D value signaling a return to bullish momentum.

Below you will find several sample entries using Stochastics. The arrows below price have been included on the chart to better understand where execution may occur.

Learn Forex EURGBP 1Hour Entries

(Created using FXCMs Marketscope 2.0 charts)

Exiting Positions

Now that a trade has been opened, traders need to have a plan to exit the market. This is the final step in developing a successful strategy! Traders may choose a variety of stop / limit and risk reward combinations here to suit their trading needs. However, if you are already using the Stochastics Oscillator for entries, you can also use it to plan your market exit. If we are buying on a return to bullish momentum, traders should conclude buying when momentum subsides. This can be found when %K crosses back below %D. The green arrows below have identified where our sample trades would be closed using this technique.

Regardless of the methodology chosen, it is always important to have a plan to exit the market. Once you have this final component in place, you then proceed to test your strategy live in the Forex market.

Learn Forex EURGBP 1Hour Exits

---Written by Walker England, Trading Instructor

To contact Walker, email WEnglandFXCM. Follow me on Twitter at WEnglandFX.

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Learn forex trade stochastics with hidden divergence

Learn forex trade stochastics with hidden divergenceLearn Forex: Trade Stochastics With Hidden Divergence

Article Summary: Stochastics can be used for more than just crossovers. To find better entries in trending markets, traders can employ a hidden divergence trading strategy.

Normally traders look at the Stochastics indicator as just another oscillator used for its overbought/ oversold values and momentum crossovers. This is for good reason since these values can be extremely useful in both trending and ranging markets. However another alternate use for Stochastics in trending markets can be to spot hidden divergence.

Hidden divergence is an exceptional market tool that can pinpoint areas to enter the market and eliminate some of the guesswork created by false trading signals. Below you can see the EURGBP daily chart that has advanced as much as 712 pips over the course of the last five trading months. Since price momentum has advanced so rapidly we can turn to hidden divergence to identify potential entry points.

Learn Forex EURGBP Daily Trend

(Created using FXCMs Marketscope 2.0 charts)

Divergence by definition implies that two things are separating. That is actively what we will be looking for on our EURGBP 1 Hour chat below. Normally when the EURGBP advances Stochastics should be advancing as well. Hidden divergence in a bull market occurs when price continues to trend higher but our indicator moves lower.

To begin analyzing hidden divergence in an uptrend we need to begin with identifying the current lows of price. In an uptrend. our lows should be advancing making higher lows on the graph. Next we will need to compare Stochastics for the same period. Marked below we can see the indicator creating a series of lower lows. This is hidden divergence! Now that hidden divergence is spotted traders will often proceed to execute on either a crossover or return from oversold values in expectations that the trend will move to higher highs.

Learn Forex EURGBP Hidden Divergence

(Created using FXCMs Marketscope 2.0 charts)

It is important to note that indicators can stay overbought and oversold for long periods of time. As divergence trades may develop over a longer time frame, traders should always look to contain risk by the use of a stop order. One method to consider in an uptrend is to employ a stop underneath the current swing low in price.

---Written by Walker England, Trading Instructor

To contact Walker, email wenglandfxcm. Follow me on Twitter at WEnglandFX.

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Looking for a strategy to trade? Take our free CCI training course and learn new ways to trade with this versatile oscillator. Register HERE to start learning your next CCI strategy!

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Stochastics oscillator strategy

Stochastics oscillator strategyStochastics Oscillator Strategy

This strategy article will demonstrate the use of the Stochastics oscillator in trading the Forex market. The Stochastics oscillator is a momentum indicator that is used in detecting conditions when the market is oversold, and conditions when the market is overweight and ready for a fall.

The Stochastics indicator is made up of two lines (the fast and slow Stochastics lines), as well as an indicator window which shows a calibration of 0 to 100, with values closer to 0 showing underweight/oversold conditions and values closer to 100 showing overweight/overbought conditions.

The Stochastics oscillator is not used alone in the strategy we want to describe, but is used in conjunction with the following indicators:

b) Autopivot calculator (optional).

The strategy is a range trading strategy known as the basic Bollinger strategy. It aims to identify trading opportunities when the market is in consolidation. There are periods when the markets are typically range-bound. Examples of such periods are when a major news trade is being awaited. Traders will generally stay on the sidelines, not wanting to get caught on the wrong side. The volume is quite thin, but at the same time, it does not go down to zero and that is why we see prices bouncing between both ends of a price range.

The trade strategy is a simple one. It aims to buy at the lower end of the range (located at the lower Bollinger band) and sell at the upper end of the range (upper Bollinger). By buying low and selling high, the trader can repeatedly make some money as long as the market stays range bound. Let us look at the strategy in action.

A long trade opportunity presents itself when two things happen:

a) The candlesticks touch or cut the lower Bollinger band.

b) At the same time, the Stochastics oscillator shows that the market is oversold (<25).

c) An additional confirmation of the trade occurs when all this happens at a support level (S1, S2 or S3 as shown by the autopivot calculator).

The signals are best derived from intraday charts such as the hourly chart. When these signals occur, the trader should enter long at the open of the next candle.

A trailing stop should be applied to the trade when the price action gets to, and crosses above the middle Bollinger band by 15 pips. The trade can then be followed all the way to the upper Bollinger band. At this point, the trade should be terminated.

A short trade opportunity presents itself when the following occur:

a) The candlesticks touch or cut the upper Bollinger band.

b) At the same time, the Stochastics oscillator shows that the market is overbought (>75).

c) An additional confirmation of the trade occurs when this setup presents itself at a resistance level (R1, R2 or R3 as shown by the autopivot calculator).

Once again, the hourly chart is the best place to derive these signals. When these signals occur, the trader should enter short at the open of the next candle.

A trailing stop should be applied to the trade when the price action gets to, and crosses below the middle Bollinger band by 15 pips. The trade can then be followed all the way to the lower Bollinger band, where the trade is ended.

Chart Examples

The following charts illustrate the long and short trades for the strategy. As we can see, a period of consolidation can present both long and short opportunities in which case, the trader can enter long, exit the trade, enter short, exit and keep on picking trades until the currency pair being traded starts to trend. Once the market starts to trend, the strategy will no longer work.

1 hour chart showing the trending pattern from 17/5/2011 to 25/5/2011

The chart above has 6 signal spots labelled A to F. Spots A, C, D, were good sell signal spots that would have netted anything between 80 and 140 pips. Spot F was only good for 35 pips because the market began to trend owing to dollar weakness, thus limiting the success of the signal at that point. Spots B and E were good buy signals as well, as the Stochs at these points well below 25 and the candlesticks cut the lower bands appropriately. Here are some more chart examples for this strategy.

Example 3: 4hr chart

This is how to trade the Stochastics oscillator strategy.

Scalping system#14(eurusd scalping with bollinger bands)

Scalping system#14(eurusd scalping with bollinger bands)Scalping system #14 (EURUSD scalping with Bollinger Bands)

Submitted by User on April 15, 2010 - 16:05.

Submitted by Hessel

Currency: EUR/USD

Time Frame: 5M, 1M

Before I explain my simple scalping system, I have to thank Chelo who posted ''Scalping system #7''. I love the simplicity of the system, and it seems to work pretty well! However, I was not fully satisfied about the entry-rules and the stop loss. Prices can move up and up and up between BB 50-2 and BB 50-3.

So I thought about tuning the system up a little bit, making the entries more reliable.

To do this, I added RSI 8 (lines on 30 70) and Full Stochastics 14,3,3 (lines on 20 80)

We now use the following indicators:

Bollinger Bands period 50 deviation 2 (yellow)

Bollinger Bands period 50 deviation 3 (blue)

Bollinger Bands period 50 deviation 4 (red)

RSI 8 (horizontal lines on 30 70)

Full Stochastics 14,3,3 (horizontal lines on 20 80)

The entry rule stays the same, when price crosses at least half way to the upper blue bollinger band, we sell. Price will retrace to the middle red line (MA50). This is where we take profit! Taking profit a little bit earlier could be wise, because it is not 100% guaranteed that the retracement will move all the way to the MA50. But, ONLY sell when RSI is above 70 and the Full Stochastics (almost) hit the 80 line.

I don't use stop losses with this system, because (especially on 5M time frame) entries are nearly almost a success. When prices go the wrong way, I just double my bet! I take profit when price nearly reaches the MA50 during a retracement. Having patient is very important when using this scalping system!

Stochastic rsi

Stochastic rsiStochastic RSI

The Stochastic RSI combines two very popular technical analysis indicators, Stochastics and the Relative Strength Index (RSI). Whereas Stochastics and RSI are based off of price, Stochastic RSI derives its values from the Relative Strength Index (RSI); it is basically the Stochastic indicator applied to the RSI indicator.

As will be shown below in the chart of the SP 500 E-mini Futures contract, the Stochastic RSI gives more profitable buy and sell signals and overbought and oversold readings . than the Relative Strength Index:

In the chart above of the E-mini SP 500 Futures contract, the RSI indicator spent most of its time between overbought (70) and oversold (30), giving no buy or sell signals. However, the Stochastic RSI used the RSI indicator to uncover many profitable buy and sell signals.

How to interpret the buy and sell signals of the Stochastic RSI is given next in the chart of the SP 500 E-mini:

Stochastic RSI Buy Signal

Stochastic RSI Sell Signal

Sell when the StochasticВ RSI crosses below the Overbought Line (80).

The Stochastic RSI is an effective and potentially profitable use of the popular Stochastic indicator and RSI indicator. To read more about the Stochastic indicator and the RSI indicator, click the links below:

Foreign exchange market commentary

Foreign exchange market commentaryForeign Exchange Market Commentary

THE EURO closed higher due to short covering on Thursday as it consolidates some of the decline off October's high. Stochastics and the RSI are oversold but remain neutral to bearish signalling that sideways to lower prices are possible nearterm. The highrange close sets the stage for a steady to higher opening when Friday's night session begins trading. If it extends the aforementioned decline, March's low crossing is the next downside target. Closes above the 20day moving average crossing would confirm that a shortterm low has been posted.

THE YEN closed lower on Thursday. The highrange close sets the stage for a steady to lower opening when Friday's night session begins trading. Stochastics and the RSI are overbought and are turning neutral to bearish signalling that a high might be in or is near. Closes below the 20day moving average crossing are needed to confirm that a high has been posted. If it renews this month's rally, the 87% retracement level of August's decline crossing is the next upside target.

THE SWISS FRANC closed higher due to short covering on Thursday as it consolidates some of the decline off October's high. The highrange close sets the stage for a steady to higher opening when Friday's night session begins trading. Stochastics and the RSI are oversold but remain neutral to bearish signalling that sideways to lower prices are possible nearterm. If it extends the decline off October's high, January's low crossing is the next downside target. Closes above the 20day moving average crossing are needed to confirm that a shortterm low has been posted.

STERLING closed higher on Thursday. The highrange close sets the stage for a steady to higher opening when Friday's night session begins trading. Stochastics and the RSI are neutral to bullish signalling that sideways to higher prices are possible nearterm. Closes above the 20day moving average crossing are needed to confirm that a shortterm low has been posted. If it renews this month's decline, the 75% retracement level of the AprilJunerally crossing is the next downside target

Learn the best online swing trading tips and strategies

Learn the best online swing trading tips and strategiesLearn the Best Online Swing Trading Tips and Strategies

Swing trading is defined by Investopedia as a strategy “…that attempts to capture gains in a stock within one to four days.” Swing traders do not generally examine the fundamentals of a stock. They usually employ a host of tips and strategies to achieve short term profit besides examining financial data and metrics.

Online Swing Trading Tips Using Candlestick Formations

Some swing traders will analyze single or multi-day price bars, also called Japanese Candlesticks. Martin Pring and Steve Nison are two well known swing traders that use technical analysis of individual price bars.

Erik Gebhard, from Alatvest Worldwide Trading Corporation, suggests the follow formations as indications of price reversals or confirmation of trends:

Some bullish candlestick formations

Bullish engulfing

Morning star

Hammer

Bullish piercing pattern

Some bearish candlestick formations

Bearish engulfing

Evening star

Dark cloud cover

Of course, these online swing traders do far more than simply follow a couple of basic candlestick patterns. The above examples are merely to illustrate a smattering of methods and tips to trade daily price bars with technical analysis.

The Use of Swing Charts

Justin Keupper, a writer for Investopedia, recommends the use of swing charts. These can come in a variety of flavors.

Kagi charts

Gann-based charts

Renko charts

Point and Figure Charts (PF)

The fundamental goal of Gann-based charts is to compare the stock price open and closing values to the previous day’s action. Each day will have a color associated with it depending on whether prices went significantly up or down, or moderately up or down (as determined by specific criteria and previous bar).

Swingtrading chart tips:

Short term swings are identified (according to W. D. Gann) by three consecutive up or down days.

Richard Donchian suggests buying when prices break four week highs and selling when share value falls below four week lows.

Zigzag is a popular form of swing charting that defines small moves that exceed user specified limits. For instance, swing traders can identify all price moves above 5%, 10% or 15%.

Swing Trading Using Momentum Indicators

Another technique to forecast very short term price movements is to use momentum based indicators. There are many ways momentum indicators can be used to give leading signals for successful online swing trading.

Here are a few of the ways Stochastics can be used for swing trading:

Buy when Stochastics indicator rises above the 20 mark

Buy when Stochastics is rising yet stock prices are dropping

Short sell when Stochastics indicator falls below 80 mark

Short sell when Stochastics are falling yet stock prices are rising

Stochastics moving in a different direction than the stock price is also called positive and negative divergence. Similar methods can be used with tools such as the Moving Average Convergence Divergence (MACD). Using Stochastics with other indicators such as On Balance Volume or Money Flow Index can increase reliability.

Profitable Swing Trading and Discount Brokerages

Swing trading is not day trading and therefore it is not subject to the same rules by the SEC. Still, a profitable swing trader would do well to keep transaction costs as low as possible to maximize profits. Joining a proprietary trading firm is one method to lower fees while taking advantage of ECN rebates. Other discount brokerages should be investigated to ensure maximum profit is retained.

While many strategies exist, these online swing trading tips may help new traders begin a successful career.

The best indicators in anon-trending market

The best indicators in anon-trending marketThe best indicators in a non-trending market

Posted on8.12.2010

Every trader loves a trend, but the forex trading market doesn’t always oblige. For those times when currency pairs seem to be stuck going nowhere fast, here are the best indicators for a non-trending market.

The relative strength index (RSI) uses the closing price to compare the strength of up time periods (ascending candles) to the weakness of down time periods (descending candles). The resulting measurement of the time period’s relative strength is graphed as a single line oscillator on a scale between 0 to 100, rising and falling with buying and selling pressure and therefore with the price action.

When the currency pair has rallied, often it becomes overbought. In forex trading, this level is variously defined as 70, 75, or 80 in the RSI graph, depending upon the trader’s level of risk appetite (higher numbers equalling higher risk). After a fall in the currency pair, often it becomes oversold, which is variously defined as 30, 25, or 20 on the scale. Again, this varies with the individual trader’s risk appetite, with lower numbers here equalling higher risk.

Another useful feature of the RSI is its ability to form chart patterns, such as double tops or consolidating triangles, which can be traded just as their counterparts on the underlying charts are traded. RSI chart patterns can form with or without a corresponding pattern forming on the chart itself. Although they’re not common, they tend to be reliable.

Stochastics compare the current time period’s closing price with the highest highs and lowest lows over a defined lookback period, with the result graphed on the usual oscillator scale as a line called the %K. To this is added another line, a three time period moving average of the %K, called the %D. Stochastics also measure overbought and oversold levels, in a similar manner to the RSI, but they don’t form chart patterns.

The second line in the stochastics oscillator, however, does allow for trading using crossovers:

• When the faster %K crosses above the slower %D, it’s a bullish signal, and

• When the %K crosses beneath the %D, it’s a bearish signal.

Finally, both the RSI and stochastics can be traded using divergence. Sometimes the indicator and the price action disagree, with the price reaching a new higher high (negative divergence) or lower low (positive divergence), but the indicator failing to confirm the move. When this happens, the most common response is for the price to turn and follow the indicator in a reversal of the overextension. The higher high is likely to turn negative, and the lower low is likely to climb higher, giving the forex trader advance warning in time for a profitable market entry.

5m kevinator retracement forex system

5m kevinator retracement forex system5M Kevinator Retracement Forex System

5m Kevinator Retracement Forex System is a forex strategy that is run based on the trend by using the multi time frame stochastic indicator see the current market trend. This forex system was used for major currency pairs only (EURUSD, USDCHF, GBPUSD, AUDUSD, USDCAD) in 5 minutes chart only. If the market is stepping up then you take buy retracement bars. If the market is stepping down you take the sell retracement bars.

Retracement bars are the magneta (purple) bars on the indicator on the bottom. If the market is stepping down you take the downward magneta bars as entry. If the market is stepping up you take the upward magneta bars as entry.

You can either enter the market (long term) when the mtf stochastics is changing directions and hold until trend is done or at any of the retracement bars going in the direction of the trend and hold (20-400 pips).

You can scalp the market by finding the direction of the current trend (stepping up or stepping down) and entering the retracement bars and taking 5 to 20 pips profit.

There are two ways to trade this system but the entry rules are solid. We have a solid method to define a trend (mtf stochastics) and a solid entry method ( enter on retracements).

It is up to you how much profit you take as you could be following a trend for days or just scalping all day long for short profits.

Using stochastics for crossover signals

Using stochastics for crossover signalsUsing Stochastics For Crossover Signals

Full Review of Stochastics for Crossover Signals in Binary Options

Using stochastic crossovers as a trading strategy is a risky undertaking. Stochastic is a popular trading tool but it is best used in conjunction with other indicators and not as a strategy all its own. As a trading strategy stochastic by itself leaves much to be desired but when incorporated with other tools in the traders toolbox can be an effective means of determining trend, entry points, support and resistance.

What Is Stochastics?

Stochastics is an oscillator tool similar to MACD and RSI. These tools measure market movement in a number of ways but all are focused on strength of direction over time. Oscillators usually move in a range that can be over and under 0 or between 0 and 100 as in the case of stochastic. As a stock moves upward the oscillator will move upward, trending in a fashion that mimics the movement of the underlying stock. Typically, oscillators can move within the range to positive and negative extremes in either bull or bear markets. What I mean is that an oscillator may retreat to a bearish extreme in a bull market or climb to a bullish extreme in a bear market. These moves to extreme levels are not signals of reversal but potential entry points in the underlying trend.

How Stochastic Works

Stochastic was created by a futures trader named George Lane. Because it is was designed for futures trading it is based on very short time frames which also makes it good for binary options trading. The methodology assumes that in an uptrend stock prices will close near the top of the days range and that in a downtrend prices will close near the bottom of the days range. The stochastic indicator uses two lines, %K and %D. %K is a measure of the day to day variation of stock closing prices. Since it so short term it is volatile and provides many false signals. The %D line is a smoothed version of %K and is more important, therefore earning the name of Signal Line. The math for the indicator looks like this:

C = Closing Price, L 5 = the lowest closing price for the last five days and H 5 = the highest high for the last five days.

H 3 = 3 period sum of (C-L 5 ) and L 3 = three period sum of (H 5 L 5 )

The results, when plotted over time, are two lines that move between 0 and 100. The %K line can make detectable patterns but because of the volatility they are hard to read. The %D line smoothes out the data providing a signal line for the %K to cross over as well as providing signals of its own.

How to Use Stochastics for Crossovers

There are two primary methods for using stochastics crossovers in binary options. The first is when the %D line moves to an extreme, reverses, and then crosses back out of the extreme range. This is supposedly a sign of strength in a bull market and a sign of weakness in a bear market. A bullish crossover would be when %D moves below the bearish extreme and then crosses back over and the reverse in a bear market.

These signals, depending on the time frame of the chart you are looking at, can be longer term than you might be looking for. It can sometimes take 2 or even three crossovers before an anticipated movement actually happensbut this is the basis of a different technique that I will talk about in a future piece.

Longer Term Crossovers

In shorter terms crossovers are just what they sound like; one line crosses over the other. In this case it is the %K line crossing over the %D line. However, in order to use this technique you must first understand the underlying trend because using this technique to trade against the trend could result in huge losses. So, assuming the trend is bullish a crossover would be when the %K line moved below the %D line and then crosses back over %D. In a bear market a crossover would be when %K moves above %D and then crosses back under %D.

Shorter Terms Crossovers

Why This Technique Doesnt Suck

This technique does not suck for one simple reason. It can provide reliable signals for entry in bull and bear markets. If you have correctly identified trend stochastic crossovers can be found in short, mid and long term charts and are especially strong signals when more than one time frame converge and give signals at the same time. Imagine the ocean during incoming tide and imagine that the long term trend is like that tide, slowly moving in. At some point the ocean, the wave and the ripple will all pull back simultaneously, just like the markets during corrections. This pullback opens a door for a new wave of investors to come in and make a higher mark on the shore. This is what a convergence of stochastic crossovers is like. It measures the waves and ripples in the market and when they converge it can signal an incoming wave of investors.

Why Stochastic Crossovers Suck

Stochastic crossovers suck because they are a lagging indicator and can produce numerous whipsaws if you dont pinpoint your entry correctly. Crossovers can occur at any time and in any market. If you only rely on crossovers to provide your signals there is a good chance that you will miss out on large portions of the profits or could even lose money. Likewise, if a market is not trending strongly it is more likely that crossovers will be false signals and whipsaws.

The Last Word on Stochastic Crossovers

Here is the way idaytrade the emini-ym

Here is the way idaytrade the emini-ymHere is the way i daytrade the Emini-YM

Here is the way i daytrade the Emini-YM

Here is the way i daytrade the Emini-YM

Hi guys and girls, since i know how difficult it was for me to start daytrading for a living and make a good living out of it i though i should share my system with the rest of you guys and hopefully some of you new fellow daytraders could use this for your advantage.

First i must stress that if u dont have dicipline and dont follow a strict plan you will not

be able to use this system or anyother system for that matter. Daytrading is 90% in your head and rest is having a simple and robust system that you are comfortable with.

Other thing is that you need sound moneymanegmant otherwise you could easly blow you account and it will be a emotionel rollercoster that will make u chass and revenge trade and fogg up you jugdment .

SO here is goes, what i use is 4 charts with different timeframes:

1: 144tick chart with a 89exponential moving average and a 15exponential moving

average and slow stochastics and macd.

2:3min chart with 20exponential moving avererage and slow stochastics

3:10min chart with 20exponential moving average with slow stochastics

4:30Min chart with 20exponential moving average with slow stochastics

I find this to be a pretty simple and easy to understand plan, i belive that making things to complicated just confusses you and you will eventually just get tired and not pay attention and u will do something stupid and loss ur money.

Before i start trading i look at my 10 min and 30min charts to see if there are any strong up or downtrends so i dont start with going against any strongs trends.

Rules are as follow if i wanna go long:

Look at 30min slow stochastics and see if its pusing up or down.

Look at 10min slow stochastic and see if its pusing up or down

Then look at my 3min slow stochastics and see if its pusing up or long, if its pushing down i will wait for it to cycle and go up, i always want for a minimum have 10min and 3min stochs on my side, if not i will not take the trade, now that 10min and 3min stoch is on myside and pushing up i then look at my 1min chart and see if the stoch is on my side, if not i wait for it to turn around and then wait for the macd to comfirm and i go long. But another thing is that the price needs to cross the 89exponential ma on the 1min chart, if it dont go above i will not go long. You can also go long or short using this methode without waiting for the price to cross the 89expon ma, but then u will not have a good place to set a stop in my opinion, i ususaly have stops around 20-27 ticks tops, and when price crosses the 89expon i put my stop right under the 15expon on the 1min chart, that always follows the price closly, i also use it to trail if the trade is pushing higher. The other thing i also look for is, the following. i dont want any of the 20expon moving averageson the 3min and 10min and 30min to be to close to my entry, what i mean is if i enter a trade at 10300 and i see that the 20expon on the 3min is 10 ticks above i will not take the trade, i might consider putting the buy stop right above that insteda, i always prefer to have zero or little support above where i wanna go long or oposite of i was short.

I always trade 3 contracts and have 3 profit targets that i have programed in my infinity platform. I take first profit at +10 and second at +15 and last +25.When second target is hit i always take my stop and move it closer to closest support area and keep moving it up as support follows price. I know some mightsay that +10+15+25 is to little profit but this is working well for me, and buy going out in 3 stages u also lower ur risk, the longer u are in a trade the more risk there is.

For each 5000 in your account u can trade 1 contract, thats my recommendation, if u want to do it lower risk u can try 1 contrackt per 10000 in your account, it all depends how much u want to take, never risk more then 2% of your account in each trade, otherwise ur losses will get you emotionel and u will start making mistakes.

I usualy do around 4-5 trades like these and end up with around 150+- to 350+- all depenidng on if i only get 2 targets and scracth the last, i hardly get stopped and those times i do get stopped is cause i dont pay attention to my rules and entrer to early or to late. Been using this systemfor around 4 months and havent had a loosing day so far and still going strong. Just increasing my contrakt size as my account grow and use the same method with just more cars. And i would thing that most would look at this as a scalp method and i agree i guess.

I have also included a picture of my screen setup and hopefully it will make things clearer, i am not that good at explaining things so if there is something unclear will try

to explain better, please come with comments good or bad. Constructive comments are appritated.