The Stochastic oscillator is a well-known indicator primarily used to identify oversold and overbought market conditions.
Indicator readings below 20 are considered to be oversold while readings above 80 are considered to be oversold.
Here’s a basic trading system based on the Stochastic oscillator.
Indicators: Stochastic Oscillator with setting (5,3,3), 200 Simple Moving Average
Time frame(s): 15 Min and above
Trading sessions: All
Currency pairs: All
GBP/JPY Daily Chart Example
- Price above the 200 Simple Moving Average
- Stohastic above 20 from below
Place low risk stop-loss below the most recent support area. Take profit at 1:2 risk to reward ratio or better (or use any other method).
The illustration above shows us 5 entry signals along the uptrend. 4 Winning signals and 1 stopped out (stop-loss hit).
- Price below the 200 Simple Moving Average
- Stochastic below 80 from above
Place low risk stop-loss above the most recent resistance area. Take profit at 1:2 risk to reward ratio or better (or use any other method).