Stochastics

[TradeToGo]

Hi folks. I'm sure I'm not the first person to notice that there's a very high correlation between the direction of stochastics compared to price (as, of course, mathematically there should be).

I've been trading solely using stochastics with promising results (on EURUSD and GBPUSD) for a short while. Has anyone else got experience of trading solely on stochastics?

The biggest issue for me is that the market often changes direction quickly, thus requiring me to be glued to the screen constantly. (Not very good if I have to answer a call of nature, for instance!) The other issue is that they only work to greatest effect when there's a reasonable level of activity in the market, or you find yourself giving back to much on the spread to your spread betting broker.

This method appears to be ripe for an Expert Advisor mechanical system. Or maybe there's already one out there that I've not discovered?

I'd be fascinated if anyone will share their experiences?

 

[alfiemal]

Hi, I have been doing something similar to you I think! I have been having a look at short term trading strategy on EURUSD & GBPUSD myself using stochastics, I am also using RSI. I get the impression that people think these well known indicators are not much use, but maybe they are.

It seems to me like a good system. Well I am not actually trading the setups at the minute what I am doing for the time being is writing down each night the number of pips profit I would have made had I taken the trades at the time of the signal. Sort of forward testing on paper.

The way I am using it is this; I look to trade the 1min chart when the stochastic is overbought or oversold and starts to hook back, also I will take a trade if there is good divergence. But I dont take all the trades what I do is wait for the stochastic on the 5min chart to enter into overbought/sold region before I will take the trade when the stochastic on the 1min chart gives me a signal, I use the 5min to attempt to filter out higher probability trades rather than taking all the signals on the 1min chart. If the trade sets up near a recent support or resistance level on the 5 min chart it seems even higher probability.

Just a home made system I have been playing about with for a few weeks but there hasnt been a losing day and some days there is plenty of profit over a hundred pips. If it worked it would be a brilliant strategy but sometimes things look brilliant until you actually start trading them with real money in the market so I am not too exited yet!

Im not sure exactly if your trading similar to the way I am, but if I was trading this method I think I would like to trade direct acces forex broker rather than spread betting. I know there is a tax advantage with SB but it might just make the system unprofitable when you are trading short term intraday, most people agree short term trading and scalping is very difficult with SB companys, as the spreads are wider, they skew prices, they delay orders for there own advantage etc... As with GBPUSD the spread with IG is 3 Pips when some of the FX brokers can give you a spread of 1 pip, also on EURUSD there is a broker called Dukascopy which can offer o.5 pip spread. The spread could be the difference between making profit and losing!

Are you trading higher time frames or smaller 5min and 1min like me?

 

[TradeToGo]

Hi, I'm trading simply off the 5 minute timeframe. This is for several reasons:
1. I like to keep trading as simple as possible;
2. I've found that if I start to use too many indicators I'm setting myself up for too much analysis and potential hesitancy, and too often make mistakes (invariably against my favour!).

I set the stochastics at 14-3-20. This removes some of the fluff, but also gives me reasonable notification of key changes in trends. Of course it's possible to trade more than one currency but I think you'd need a more sophisticated dealing desk than a standard PC to trade more than 2 without getting completely pickled .

All I do is wait for the stochastics lines to cross, and then open a trade. If the lines are going up I buy, if they're going down I sell. I'm more aggressive (i.e., with larger sums of cash per point) if the starting point is in the 80% range for a sell and 20% range for a buy. I'm very cautious if I'm entering a trade when the stochastics charts are around mid-range.

The downside is, of course, that stochastics are sometimes slow to identify that the market has turned. So you can give back a lot of points between the time the turn happens to the point where the stochastics lines cross. However, of course this can also work in your favour - by allowing the market to "breathe" the small downturn could also be the beginning of another surge in the movement of the trade in your direction. To counter this I usually set a Trailing Stop of 20 points.

I've found that stochastics are reasonably reliable in periods of high volume trading (i.e., in the UK between 7am to 10am and 1.30 to 3, sometimes 4pm). Outside of this, when there's often considerable sideways movement you're constantly receiving conflicting direction signals.

If I was able to set up an Expert Advisor I would be able to capture all changes in trend direction in the principal trading times. Currently, my manual trading gives me a small positive balance but all too often I'm missing out on quick changes in market direction simply because it takes a good few seconds to close a trade and open another. By capturing the quick changes in direction using an automated system I'll be able to capture significantly more pips profit.

This thread doesn't appear to have much activity - anyone got any ideas where else I can point this?

 

[trader2419]

I find stochastics are fantastic in a low volume lunch time trading range type price action and use the stochstics % d for divergence for a stronger signal. Stochastics are just horrible during the first and last hour of the market. Because of the strong trends either up or down. too many false buy or sell signals. thats why i always trade direction of the trend:clap: