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Combined Stochastic Oscillator/MA Trading Strategy
Combined Stochastic Oscillator/MA Forex trading strategy
is a relatively safe trading system that is based on the standard Stochastic
Oscillator indicator in combination with the standard Exponential Moving
Averages. You can use the moving averages as the general long-term trend
indicator, while the stochastic will show you the short-term overbought/oversold
states, where you can enter a successful pull-back trade.
Features
- Rather reliable.
- Trading with the trend.
- Isn't very easy to follow.
- No definite target/exit levels.
Strategy Set-Up
- Any currency pair should work. Use D1 timeframe for the long-term trend
detection with the Exponential Moving Averages and H1 timeframe for the
short-term signal receiving with the Stochastic Oscillator.
- Add 3 Exponential Moving Averages to the D1 chart, set periods to 50, 100
and 200.
- Add a Stochastic Oscillator indicator to the H1 chart, set its %K period to 14,
%D period to 3 and slowing to 3, use Close/Close price field, set overbought
level to 90% and oversold level to 10%.
Entry Conditions
Enter Long position when the long-term trend is bullish (the D1 chart shows
price above EMA50, EMA50 above EMA100 and EMA100 above EMA200) and the
stochastic crosses the oversold level from below on H1 chart.
Enter Short position when the short-term trend is bearish (the D1 chart shows
price below EMA50, EMA50 below EMA100 and EMA100 below EMA200) and the
stochastic crosses the overbought level from above on H1 chart.
Exit Conditions
There are no definite SL/TP levels, but the recommended risk/reward ratio
is 1/2.
A rather tight trailing stop should be maintained.
Example
Bearish trend:
Bullish trend:
On the example charts you can see the December 14, 2009 signals generated both for
the bearish EUR/AUD and for the bullish AUD/CHF charts. As you see, the signal
line for stochastic oscillator is the actual stochastic, not its MA. The
exponential moving averages should form an almost perfect trend for the more
accurate signals. In the Short position example both positions would hit a rather
optimistic take-profit. In the Long position example the second trade would end
with almost no loss if a tight trailing stop was used.
Warning!
Use this strategy at your own risk. EarnForex.com can't be responsible for
any losses associated with using any strategy presented on the site. It's not
recommended to use this strategy on the real account without testing it on demo
first.
Discussion:
Do you have any suggestions or questions regarding this strategy? You
can always
discuss
Combined Stochastic Oscillator/MA Strategy with the fellow Forex traders
on the Trading
Systems and Strategies forum.
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