Best Stochastic Trading Strategy - How To Use Stochastic Indicators

4/3/2020 Best Stochastic Trading Strategy- How to Use Stochastic Indicators
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Best Stochastic Trading Strategy- Easy

6 Step Strategy
by TradingStrategyGuides | Last updated Jun 29, 2019 | All Strategies, Indicator
Strategies | 21 comments
Day trading with the best Stochastic Trading Strategy is the name of the strategy we’ll
discuss today. As the name suggests, this is a stochastic strategy suitable for day
traders. The stochastic strategy is much the same as the Day Trading Price Action –
Simple Price Action Strategy.
The only di erence this time around is that we incorporate a technical indicator into
this strategy. Namely, the stochastic indicator. This is the best Stochastic trading
strategy because you can identify market turning points with accurate precision.
Warning! This can turn you into a modern sniper elite trader. The Stochastic indicator
will only make you pull the trigger at the right time. A modern sniper elite trader only
pulls the trigger on a trade when he is certain he can pull a winning trade.
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Our favorite time frame for the Best Stochastic Trading Strategy is the 15-minute chart.
This is because we have taken the time to backtest the best Stochastic Trading Strategy.
We also tested the 15-minute TF came over and over again. If you’re a day trader, this is
the perfect strategy for you. The stochastic strategy evolved into being one of the best
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stochastic strategies.
Despite the stochastic indicator being a very popular indicator among traders, they
have been using it the wrong way. Our team at Trading Strategy Guides.com
interprets the charts and the indicators in an unorthodox way. At the same time, it’s
very productive.
Day trading might not be your thing, but perhaps you’re interested in trading on the
higher time frames, like the daily chart. Don’t panic! We have your back. Our favorite
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Now…
Before we move forward, we must de ne the

indicators you need for day trading with the best
Stochastic Trading Strategy and how to use
stochastic indicator.
The only indicator you need is the:
Stochastic Indicator: This technical indicator was developed by George Lane more
than 50 years ago. The reason why this indicator survived for so many years is because
it continues to show consistent signals even in these current times.
Without further ado, let’s move straight to the point and:
De ne what the Stochastic indicator is;

How to use Stochastic indicator;
What are the Stochastic indicator settings;
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The Stochastic indicator is a momentum indicator that shows you how strong or weak
the current trend is. It helps you identify overbought and oversold market conditions
within a trend. The stochastic indicator should be easily located on most trading
platforms.
The Stochastic indicator looks like this:
After extensive research and backtesting, we’ve found that this indicator is more
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You should really check out our amazing MACD Trend Following Strategy. We decided
to share this with our trading community recently.
Another reputable oscillator is the RSI indicator, which is similar to the Stochastic
indicator. We chose it over the RSI indicator because the Stochastic indicator puts more
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weight on the closing price. This is the most important price no matter what market you
trade. This strategy can also be used to day trade stochastics with a high level of
accuracy.
Let me just quickly tell you how to use the stochastic indicator and how to interpret the
information given by this amazing tool so you can know what you’re trading. When the
stochastic moving averages are above the 80 line, we’re in the overbought territory.
Conversely, when the stochastic moving averages are below the 20 line, we’re in
oversold territory.
Please have a look at the chart example below to see how to use the stochastic
indicator.
So, how does the stochastic indicator work?
The stochastic oscillator uses a quite complex mathematical formula to calculate simple
moving averages:
%K = 100(C – L14)/(H14 – L14)
Where:
C = the most recent closing price

L14 = the low of the 14 previous trading sessions
H14 = the highest price traded during the same 14-day period
%K= the current market rate for the currency pair

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See below where to locate the %D and %K lines:
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The mathematical formula behind this method works on the assumption that the
closing prices are more important in predicting oversold and overbought conditions in
the market. Based on this assumption the Stochastic indicator works to give you the
best trade signals you can possibly nd.
Best stochastic settings for 15 minute

chart
The default settings for the stochastic indicator are 13, 3, and 1.
As you can see below, we will select a length of 14 periods to start.

Free! Now, before we go any further, we always recommend taking a piece of paper and a
pen and note down the rules.
Let’s get started…..

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Day trading with the best Stochastic

Trading Strategy
(Rules for a Buy Trade)
Step #1: Check the daily chart and make sure the
Stochastic indicator is below the 20 line and the %K
line crossed above the %D line.
We’re day trading, but having in mind the higher time frame sentiment and trend.
This is a crucial part of the strategy because we only want to be trading in the direction
of the higher time frame trend. Our team at Trading Strategy Guides.com has put a
great deal of time in developing the best guide to Trading Multiple Time Frames – The
Key to Successful Trading. The multiple time frame concept is important because it can
give you a more robust reading of the current price action and more it can help you
better time your entry and exit points.
Note*: On the daily chart, it’s not necessarily for the stochastic moving averages
to be below the 20 level. They can be moving away from the oversold territory
and the signal can still be valid, but it shouldn’t be above 50 level.
Step #2: Move

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Free! and Wait for the Stochastic Indicator to hit the 20
level. The %K line(blue line) crossed above the %D
line(orange line).
This step is similar to the previous rule, but this time we apply the rules on the 15-
minute time frame: wait for the Stochastic indicator to hit the 20 level and the %Kline
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(blue line) is crossing above the %D line (orange line).
The 15-minute chart is the best time frame for day trading because is not too fast and
at the same time not too slow.
See gure below:
It is said that the market can stay in overbought and oversold condition longer than a
trader can stay solvent. So we want to take precautionary measures, and this brings us
to the next step on how to use the stochastic indicator.
Step #3: Wait for the Stochastic %K line (blue

moving average) to cross above the 20 level
We want to trade smarter, right?
Well, because the %k is the fast moving average it’s enough just to wait for it to cross
above the 20 level because the %D line will follow suit. We don’t want to wait too much
either as this will result in a reduced pro t margin.

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Right now is the time you should switch your focus to the price action, which brings us
the next step of the best stochastic trading strategy.
Step #4: Wait for a Swing Low Pattern to develop on

the 15-Minute Chart
What is a Swing Low Pattern?
A Swing Low Pattern is a 3 bar pattern and is de ned as a bar that has one preceding
and one following bar with a higher low. Here is how to identify the right swing to boost
your pro t.
A visual representation of the Swing Low pattern can be seen below:
So far, so good, but still we haven’t answered the most important question that a trader
has:
Day trading stochastics:

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This brings us to the next rule of the Best Stochastic Trading Strategy.
Step #5: Entry Long When the Highest Point of the

Swing Low Pattern is Broken to the Upside
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Nothing beats an illustration…
So, after following the rules of the Best Stochastic Trading Strategy, a buy signal is
only triggered once a breakout of the Swing Low Patterns occurs.
Let’s turn our focus again to the EUR/USD 15-minute chart presented earlier and see
how to use stochastic indicator in combination with the Swing Low Pattern.
See the chart below:
So at this point, your trade is running and in pro t.

Free! Step #6: Use Protective Stop Loss placed below the
most recent 15-minute Swing Low
You want to place your stop loss below the most recent low, like in the gure below. But
make sure you add a bu er of 5 pips away from the low, to protect yourself from
possible false breakouts.
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Step #6: Take Pro t at 2xSL

Knowing when to take pro t is as important as knowing when to enter a trade. The Best
Stochastic Trading Strategy uses a static take pro t, which is two times the amount of
your stop loss.
See gure below:
Note** The above was an example of a buy trade using the Day
trading with the Best Stochastic Trading Strategy. Use the same
rules – but in reverse – for a sell trade. In the gure below you
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can see an actual SELL trade example using the Best Stochastic
Trading Strategy.
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We’ve applied the same Step #1 through Step#4 to help us identify the SELL trade and
followed Step #5 to trigger our trade (see next gure).
Conclusion for this stochastic

strategy:
Day trading with the Best Stochastic Trading Strategy is the perfect combination
between how to correctly use stochastic indicator and price action. The success of the
Best Stochastic Trading Strategy is derived from knowing to read a technical indicator
correctly and at the same time make use of the price action as well. We also have
training for the best short-term trading strategy.
Our team at Trading Strategy Guides.com doesn’t claim to be perfect, but we have a
solid understanding of how the market works. For those of you who are not fans of
lower time frames, we recommend the “Fibonacci Retracement Channel Trading

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Thank you for reading!
Please leave a comment below if you have any questions about Stochastic Trading
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(48 votes, average: 4.29 out of 5)

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4/3/2020 Best Stochastic Trading Strategy- How to Use Stochastic Indicators

ANNOUNCEMENT: Our Full-Time Trader Course Now Get the course 

Best Stochastic Trading Strategy- Easy

Our team at Trading Strategy Guides is developing the most comprehensive

Before we move forward, we must de ne the

Without further ado, let’s move straight to the point and:

De ne what the Stochastic indicator is;

Download The 3 Hidden Elements of

ANNOUNCEMENT: Our Full-Time Trader Course Now Get the course 

Get this FREE Step by Step Strategy Guide to Find Ridiculously

Enter your email address here...

The Stochastic indicator looks like this:

So, how does the stochastic indicator work?

%K = 100(C – L14)/(H14 – L14)

C = the most recent closing price

%K= the current market rate for the currency pair

Best stochastic settings for 15 minute

As you can see below, we will select a length of 14 periods to start.

Let’s get started…..

Day trading with the best Stochastic

(Rules for a Buy Trade)

Step #2: Move

(blue line) is crossing above the %D line (orange line).

See gure below:

Step #3: Wait for the Stochastic %K line (blue

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Step #4: Wait for a Swing Low Pattern to develop on

A visual representation of the Swing Low pattern can be seen below:

Day trading stochastics:

Step #5: Entry Long When the Highest Point of the

Nothing beats an illustration…

See the chart below:

So at this point, your trade is running and in pro t.

Step #6: Take Pro t at 2xSL

See gure below:

Conclusion for this stochastic

lower time frames, we recommend the “Fibonacci Retracement Channel Trading

Also, please give this strategy a 5 star if you enjoyed it!

(48 votes, average: 4.29 out of 5)

Here is a quick video of the strategy:

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Author at Trading Strategy Guides | Website

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