Forex School Advanced Level: Strategy with Stochastic oscillator

Stochastic oscillator shows what was the close value of market, compare with price from previous period of time. Stochastic oscillator is best for identifying overbought and oversold market conditions.

We will use default stochastic  oscillator parameters (5, 3,3) and levels of overbought 80 and oversold 20.

The rules for strategy are:

For long position:

• Stochastic must be in oversold condition below 20. The bar where %K crossed %D from bottom to top is called signal bar.
• We go for long (buy), when price breaks the highest value(high)of the signal bar. We place stop 5 or 10 pips below the lowest value(low) of the signal bar. When price starts moving up we move our stop 3 or 5 pips below the lowest value of some following bar.
• We close our position when %K crossed %D or when if price triggers our stop(see also chart pattern strategies).

For short position:

• Stochastic must be in overbought  condition above 80. The bar where %K crossed %D from top to bottom is called signal bar.
• We go for short (sell), when price breaks the lowest value(low)of the signal bar. We place stop 5 or 10 pips below the highest value(high) of the signal bar. When price starts moving down we move our stop 3 or 5 pips below the lowest value of some following bar.
• We close our position when %K crossed %D or when if price triggers our stop.