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Read the full article to learn more about this strategy and how to use it in trading. Dual Stochastic relies on the use of two off-chart Stochastic Oscillators. When the first Stochastic indicator is active, you can add the second one but change Period K, Smoothing and Period D values to 5, 2 and 2 respectively.
What you will get in the end will look like this:. Now, to the trading techniques themselves. When trading in accordance with the Dual Stochastic strategy, traders are looking for a strong trend. They then wait for Stochastic indicators to be at the opposite extremes when one of them is in the overbought zone, the other in the oversold position. When it happens, the trend can be expected to continue moving in the previously observed direction. A period EMA can be used as a confirmation.
When the candle first crosses on the other side of the moving average remember that we are talking about a strong trend, all candles are expected to be on one side of the EMA and then retraces back, a confirmation is received. NOTE: This article is not an investment advice. Any references to historical price movements or levels is informational and based on external analysis and we do not warranty that any such movements or levels are likely to reoccur in the future.
We also use third-party cookies that help us analyze and understand how you use this website. These cookies will be stored in your browser only with your consent. During the earliest use of stochastics for trading, Dr. The most commonly-used values of N used for single, basic stochastics are time-periods of 5, 9, or 14 units.
Many traders set N at 14 time-periods in order to represent a sufficient data sample for meaningful calculations. You can experiment with a different number of periods, and this may affect the results of the strategy.
Of course, for my dual stochastic strategy as outline below in this article, I use two different sets of time periods. As indicated above, the classic stochastic calculations are based on a simple moving average SMA. However, for the dual stochastic strategy described below, I also use an additional exponential moving average EMA as a separate confirmation indicator.
In contrast to the basic single-stochastic indicators described above, a dual stochastics strategy provides a greater number of winning trades. My dual stochastic forex trading strategy is based on combining together a fast and slow stochastic and waiting for opportunities when the two different indicators are at extreme opposites.
Or, as an alternative, you could confirm signals by using the middle band of the Bollinger bands. I combine both of the stochastic oscillators in the same window in the MetaTrader chart. Then enter your settings in the dialog box. The trading rules are easy. The mechanical trading system is programmed to wait for strongly-trending price, and watch for the stochastics to be at extreme opposites, near the limit values. For confirmation, the system looks for a candlestick pattern signaling a reversal after a brief retracement to the period EMA.
Examples 1 and 2 are clear signals. Example 3 is marginal, since the slow stochastic is just beginning to move up away from the oversold area. In Example 1, note particularly that the slow stochastic the yellow band is quite oversold, and at the same time the fast stochastic blue-colored band has just finished moving beyond the extreme overbought limit.
Note also that the 20 EMA was touched. The separate EMA indicator provides confirmation of the signal shown by the stochastic oscillators. The slow stochastic yellow is flat and touching the oversold limit, while the fast stochastic blue has touched the overbought limit. This last example above is a good reminder that the dual stochastics forex trading strategy is best used with a mechanical trading system programmed with firm trailing-stop and stop-loss rules to ensure that you ride the winners for as long as possible, while minimizing the losses.
The stop-loss order is placed at exactly 20 pips above my entry point. The system moves my trailing-stop order along behind the current price level during successful trades, usually at a distance of 10 pips. The main advantage of this strategy is its simplicity. Home Sign In Contact Us. The background of stochastic oscillators The first basic stochastic oscillator was developed in the late s by financial analyst Dr.
The dual-stochastics forex trading strategy In contrast to the basic single-stochastic indicators described above, a dual stochastics strategy provides a greater number of winning trades.
This dual stochastic strategy. Dual Stochastic Trade is a strategy based on the use of not one but two Stochastic Oscillators with different settings. When creating trade strategy based on the stochastic oscillator in the forex market, look for a currency pair that displays a pronounced and lengthy bullish.