Swing-Trading with Stochastics Indicator

Discussion in 'Swing Trading' started by Lily, Sep 20, 2015.

  1. Lily

    Lily Forum Member

    Aug 29, 2015
    Likes Received:
    The strategy is based around the concept of trading in the direction of the trend with the same logic that’s been taught to us since we were children: Buy low, and sell high.

    The first part of the strategy involves identifying the trend; and quite simply, if price is residing above our 50-day moving average, then the trend is qualified as to be ‘up.’ And on the opposite side, if prices are below the 50-day moving average - per the strategy the trend is classified as being ‘down.’

    Using the 50 Period Daily Moving Average as Trend Filter


    Once the trend has been identified, the trader can then look for appropriate entries. In the case of up-trends, the trader wants to look to buy - and wants to only look for BULLISH stochastic crossovers, provided that the crossover occurs below the ‘50’ line on the indicator. When %K crosses up and over %D, that is a bullish signal to enter, and once the candle in which the crossover takes place closes - thereby confirming the crossover, the trader can enter into the position. The picture below will further illustrate bullish stochastic crossovers:

    Bullish Stochastic Crossover Under the ’50’ line


    If the trend is classified as being down, with prices below the 50-day moving average, traders only want to investigate sell positions; and in this case would only be looking for BEARISH stochastic crossovers. Once %K crosses DOWN and UNDER %D, provided the crossover is taking place above the ‘50’ line, the trader can look for the close of the crossover candle to confirm that the crossover has taken place, and then trigger into the short position. The picture below will illustrate Bearish crossovers:

    Bearish Stochastic Crossover Over the ‘50’ line


    Once positions have been entered, stops and limits should be placed appropriately. The Stop for the trade is the value of the 4-hour Average True Range reading. As usual with Average True Range, the value of the indicator is displayed in the format of the currency pair, giving it a slight learning curve. The picture below will illustrate further:

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