I Talked in previous article about MACD indicator you can read it through this link
Today I will explain stochastic Indicator and how to use it in Forex trading
Stochastic Indicator
Stochastic indicator one of most important indicators ,the main function of this indicator that it gives us a report if the currency pair trading now at increased buying area (overbough) or it's trading at increased selling area (oversold) in another meaning it measures the buying and selling amounts
Best feature of Stochastic indicator that it helps us on taking the right decision around closing the deal
This indicator is provided on Metatrader program by clicking on insert then indicators then oscillators then stochastic
Stochastic Indicator components
(Moving line %K fast stoch , moving 3 days (green line
(Moving line % D slow stoch , moving 5 days (red dotted line
(These line move at range between (0 to 100
There Are 3 Main Ways To Trade Using Stochastic Indicator
Trading by watching levels 20 and 80
Trading by the crosses of fast %k line with slow %D line
Trading by drawing support line and resistance line on stochastic indicator
Firstly : Trading by watching the levels 20 and 80
If the price reached to 80 area and came from top to bottom ,at this case we prepare for selling , The meaning if the currency reached to increased buying level or buying saturation that means there are possible selling signal when stochastic indicator in or above of 80 level , but sure that is not mean you sell in every time if the price hit 80 level , it's possible be fake
If the price reached to 20 area and came from bottom to top,at this case we prepare for buying , The meaning if the currency reached to increased selling level or selling saturation that means there are possible buying signal when stochastic indicator in or under 20 level , but sure that is not mean you buy in every time if the price hit 20 level , it's possible be fake
Secondly : Trading by the crosses of fast %k line with slow %D line
Buying Signal : Firstly we see the cross of the green line %k with the red Moving line %D from bottom to top , it's preferrable to buy if the cross between 0 to 30 area and the %k coming from bottom to top
Selling Signal : Firstly we see the cross of the green line %k with the red Moving line %D from top to bottom, it's preferrable to sell if the cross between 100 to 70 area and the %k coming from top to bottom
Thirdly : Trading by drawing support line and resistance line on stochastic indicator
Selling Signal : we draw support line on stochastic indicator at top where 80 area if it broke the support to bottom we sell
buying Signal : we draw resistance line on stochastic indicator at bottom where 20 area if it broke the support to bottom we buy
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