Stochastic on the second screen
Besides Force and Elder Ray Index, an indicator oscillators commonly used on the second screen is stochastic. The stochastic oscillator is a fairly popular indicators used by forex traders. This indicator is good enough to filter out noise or signals useless. Three ways to use this indicator was observed divergence happens, overbought and oversold levels and the direction of the stochastic line. The parameter that is often used is 9,3,3 and 14,3,3.
Divergences
Bullish divergence between the stochastic indicator and the market price movement occurs when prices form new lows are lower, but the stochastic indicator forming higher lows from the previous level. This situation suggests the trend of the price movement will be changed from bearish to bullish. Conversely, if the price of forming higher highs than the previous level but stochastic indicator to form a high level that is lower than the previous high level, then the price will soon change direction from bullish to bearish or bullish divergence occurs.
Overbought and oversold levels
Stochastic lines are above level 80 indicates overbought market conditions or overbought, and shows the price movement that will soon be corrected. Overbought condition is a signal to sell. Momentum for accurate entry when the% K line crosses the% D from above. Oversold conditions or oversold situation occurs when the stochastic lines are under level 20, and is a signal to buy. Buy entry can be done when the% K line has cut the% D from below.
With the triple screen trading system, the use overbought and oversold errors can be avoided because the trader only if the entry in the long-term trend has been the appropriate time frame. Suppose trend on the weekly time frame bullish, traders will only buy if there is an entry oversold conditions on the second screen or 5-day time frame (intermediate time frame) as the benchmark time frame.
Stochastic line direction
If the lines% K and% D moves upward in the same direction, then the uptrend is strong sentiment and indicates a buy signal. Conversely when the% K and% D moving downward, the bearish sentiment is strong and indicates a signal to sell.
Examples of the application of stochastic on the second screen
Here's an example of the application of stochastic (9,3,3) on the second screen (intermediate time frames) for the EUR / USD with a 5-day time frame. The first screen (long term time frame) is a weekly time frame.
In the period of time between March and October 2009 EUR / USD trend, as seen on the weekly time frame. Level entry can be done in 5-day time frame when the stochastic lines above the level of 20 (oversold) and% K and% D simultaneously moving upwards (middle image). Level exit after the stochastic lines are above level 80 and cut the line% K% D from above. In the time period between December 2009 and May 2010 EUR / USD is bearish. Entry can be done in the event of a bearish divergence in the intermediate time frame or 5-day time frame as the benchmark (bottom image)
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