Forex trading strategy #6 (Double Stochastic)
Submitted by Edward Revy on February 28, 2007 – 14:36.
By doubling on Stochastic analysis we are doubling on trading accuracy. However, one should remember that with each new Forex tool added complexity can appear; and a very complex approach is not always good.
Currency pairs: ANY
Time frame chart: 1 hour, 1 day
Indicators: Full Stochastic (21, 9, 9) and Full Stochastic (9, 3, 3).
Entry rules: When the Stochastic (21, 9, 9) lines’ crossover appears – enter (or wait for the current price bar to close and then enter). It will be the major trend.
Look at Stochastic (9, 3, 3) to anticipate swings inside the main trend and re-enter+ the market again – additional entries. Also ignore the short-term moves Stochastic (9, 3, 3) that signal for exit – do not exit early until Stochastic (21, 9, 9) gives a clear signal to do so.
Exit rules: at the next cross of major Stochastic (21, 9, 9) lines.
Advantages: using two Stochastic indicators helps to see the major trend and the swings inside it. This gives more accurate entry ruless and gives a good exit rules.
Disadvantages: needs constant monitoring, and again we are dealing with a lagging indicator.
Is this strategy suitable for scalping?
It is works in TF5?
Quite possibly. However further testing is required to find the most suitable currency pair.
Are there strategies that work well on some currency pairs while they won’t do the same on other pairs?
Can you give an example?
Is there a reason for this to happen?
Yes, there are such strategies. Many strategies in Forex are specifically “designed” for certain currency pairs.
There are at least two reasons for that I can quickly think of:
First is the spread cost. For example, many scalping strategies recommend EUR/USD (or at most GBP/USD) currency pair, because Euro/Dollar currently has the lowest spread. This means that scalpers who aim just at 3-5 pips profit per trade don’t have to pay high spread cost and thus wait long before actually making their profits. And usually there isn’t much room for spreads in scalping strategies: you either win your 5 pips or you are going to lose.
Second is currency “behavior”, which includes volatility, average pips move per day etc. For example, such currency pairs as USD/JPY, GBP/JPY and GBP/USD are known to regularly produce large moves, which are beneficial for traders using breakout strategies.
There are two rational ways in searching for own trading approach:
1. Choosing a strategy that fits in own daily schedule best and then testing it on suggested (or all) currency pairs picking the best performing one.
2. Choosing a currency pair (using criteria of highest activity hours and own schedule, volatility, trending characteristics, spread) and then looking for a suitable strategy to use with this pair.
In both cases it is always suggested to choose one or at most two currency pairs to trade with and learn as much as possible about their behavior in the Forex market.
Good evening (or morning. )
This strategy seems interesting indeed.
but, something crossed my mind.
What do I do when the strategy is suposed to work on a 1 hour or 1 day chart and the daily chart gives a buy signal while the 1 hour cnart gives a sell signal?
I’m talking about any strategy, not about a specific one.
Solution is quite simple in this case.
If you are an intra-day trader or a scalper and not planing to leave open positions overnight – use 1 hour chart signal only.
If you plan to take a long term position, then your primary chart is daily, but your best entry point should be chosen using hourly charts. Therefore, here if you have a Buy signal on 1 day chart, but Sell signal on 1 hour chart, you have to wait till 1 hour chart changes its signal to “Buy”.
Hi everybody, from Bogotá, Colombia.
This trading system sounds interesting. My trading program (Metatrader) has only one Stochastic Oscillator. I think is a Slow Stoch. Will results be the same with this oscillator? Must I Change my program?
Thanks in advance, and I wish you Happy Trading.
CARLOS ALBERTO CASTILLO SANCHEZ
You don’t have to change anything. Use Slow Stochastic. Results will be the same.