Trading with the Stochastic Oscillator
If you have never traded forex before, then you might not know where to get started. After all, trading forex is not easy. It takes a whole lot of skill and practice in order to profit when trading forex. With that being said, there are some things that will help you become a more profitable and successful trader. One of these things is knowing what the best trading indicators are, and how to use those indicators. In terms of one of the best indicators out there at this time, the stochastic oscillator is definitely one of the best.
The stochastic oscillator is a specific type of indicator that has been around for quite some time now. In a very short amount of time, it became one of the most popular indicators out there, and this is because of its accuracy and ease of use. The stochastic indicator is a great one for newbies because it is very user friendly, and moreover it does provide very accurate signals as well. For those of you who don’t know, this is often referred to as the stochastic oscillator because the values oscillate between zero and 100.
Now, what we are here to do today is to take a closer look at a specific video that Andrew himself uploaded on his trading channel, Andrew’s Trading Channel. For those of you don’t know, Andrew is an extremely proficient forex trader who has been in the business for well over a decade.
He is actually the leader and mentor of the Income Mentor Box Day Trading Academy, one of the most popular forex trading schools in the world at this time. This video on the stochastic oscillator is an extremely useful one that provides us with many insights into this indicator. Let’s take a closer look at Andrew’s video on the stochastic oscillator see exactly what it can do for you.
What is the Stochastic Oscillator?
Perhaps the most important thing that we need to know about this particular indicator is that it is technically a momentum indicator. To put it in simplest terms, it means that this is an indicator that provides you with useful information about the strength of the trend. Keep in mind that it is called an oscillator because the values roadways from 0 to 100. Moreover another interesting fact is that this indicator was first invented by George Lane in the early 1950s.
If we are to be technical about it, the stochastic oscillator is an indicator that measures the relationship between the closing price of a specific asset and its price reigns over a certain period of time. this is an extremely popular indicator and one of the reasons why the stochastic oscillator is so popular is because it’s very user friendly and easy to read.
Moreover, something else that stands out here is that this is an extremely accurate indicator in terms of providing you with accurate buy signals and sell signals period to a certain extent, the stochastic oscillator is also a trend indicated. In all reality, when an indicator provides you with information about the momentum of a trend, it also provides you with information about the trend itself.
What does it Tell You?
As mentioned above, this is an oscillator, and this means that the values are always going to range somewhere between zero and 100. Therefore one of the most important things that you need to know here is that this also later informs you whether a security is overbought or oversold. For example, if the stochastic oscillator provides you with a value of over 80, it generally means that a security is overbought. On the other side of the equation, if the stochastic oscillator provides you with a value lower than 20, then it indicates that an asset is oversold.
Now, do keep in mind that while this does provide you with a great indication about the momentum of a trend, it’s not always totally accurate. Securities can sometimes remain overbought or oversold even when a trend continues. What does valve stand out about this specific indicator is that it does work very well at identifying hidden divergences, especially more so than other indicators.
Keep in mind that when it comes to charting the stochastic oscillator, there are only two lines that you need, with one being the real time value of the indicator, and the other one representing a simple free day moving average. In terms of reading this indicator, what we need to know is that when both of these lines crossed, it means that there is very likely a trend reversal on the horizon.
For all of the benefits that is has, this indicator does also have some drawbacks. One of the drawbacks is that they can sometimes produce false signals. They can sometimes signal that there is a reversal on the horizon, when it is actually not the case, and this can of course lead to losing trades. If a market is extremely volatile, the chances of it producing a false signal are relatively high.
However, luckily for you, in order to combat this issue, you can use price trend as a filter. The signals from the stochastic oscillator go in the same direction as your trend signal, then it is probably a safe trip to make. On a side note, this isn’t the best indicator to use in a sidewards trending market.
Tips to Use the Stochastic Oscillator
Before we finish things off for the day, we do want to provide you with some important information on how to use this indicator for the best possible results.
- First and foremost, keep in mind that when you use this indicator, generally speaking, the lower the settings that you use, the more signals you will get.
- Do keep in mind that when you are using this indicator, if the market is in a strong trend, then you want to use a pattern trading strategy.
- For the best possible results, the best settings to use here are 14, 3, 3.
The Bottom Line on the Stochastic Oscillator
As far as user-friendly momentum indicators go, the stochastic oscillator is definitely one of the best out there. However, if you want to learn everything there is to know about it, then we definitely recommend watching the included video, and moreover the Income Mentor Box Day Trading Academy will teach you everything that you need to know about it as well.
If you need help day trading, and what you need is a comprehensive education, particularly on Forex trading, then the best place to be is the Income Mentor Box Day Trading Academy. At this time, the IMB Academy is the most comprehensive, user friendly, effective, and affordable Forex trading school out there.