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Stochastic Oscillator: A Mechanical Indicator for All Traders

Stochastic Oscillator is almost the most famous indicator among stock traders. As many of the professional currency traders have been professional stock traders in the past and they still trade stocks as well, they are used to use this indicator on their charts. They are somehow addicted to Stochastic Oscillator.

The question is whether Stochastic Oscillator is really a good indicator or not?

I believe all indicators and even trading strategies are good (1) when you know how to use them properly, and (2) you wait for the strong trade setups. If not, you lose with any trading strategy and indicator.

So, first you have to master your trading strategy and the trading tools and indicators it has, and then you have to wait for the strongest trade setups and ignore the weak and questionable ones. If so, you will make profit, no matter what trading strategy and indicator you are using. If not, you will lose, no matter you have the best trading strategies, indicators, software, and… .

Stochastic Oscillator is not an exception. Many traders know this indicator as a money sucker, but I believe all indicators, even candlesticks that are my favorite trading tools, can be terrible money suckers when you don’t know how to use them properly, and when you don’t wait for them to form good and strong trade setups.

To become a consistently profitable trader, first you have to master your trading strategy and the indicators it has.

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What Is Stochastic Oscillator Indicator?

Stochastic Oscillator is an oscillator that records the price fluctuations and speed which is known as momentum.

The Stochastic Oscillator formula doesn’t tell you whether you should use this indicator or not. Any indicator has a special formula which is different from the other indicators. What has made Stochastic Oscillator different from the other indicators is that, it doesn’t roughly follow the price, like what many other indicators do. It tracks the speed of the price changes which is also known as momentum.

The most important point here is that, as the momentum changes before the price changes its direction, you can make big mistakes if you enter the market right after Stochastic changes its direction. This is how most traders lose when they use Stochastic, whereas the problem is in the way they use this indicator, not in the indicator itself.

The most important part of Stochastic is the %K parameter. It is set to 14 by default and most stock traders use this settings, but on MT4 platform it is set to 5. However, it doesn’t make a big difference actually, at least in the way that I am going to show you to use it.

Like RSI, Stochastic Oscillator goes to overbought and oversold areas. When the price goes up for a few candlesticks, Stochastic Oscillator goes to the overbought area which is above the 80 level, and when the price goes down for a few candlestick, Stochastic Oscillator goes to oversold area which is below the 20 level.

Some traders are used to change these levels to 70 and 30 to filter out some of the false trade setups, but this is not a good idea and we really don’t have to do that, because as I mentioned earlier in this article, Stochastic Oscillator’s application is completely different from what most traders think. Stochastic Oscillator is an indicator to follow the price speed, not the price movements.

Overbought and Oversold Areas in Stochastic Oscillator

As you see on the above chart, Stochastic is used to go up and down between the 20 and 80 levels. Most traders think that they should buy when Stochastic Oscillator changes its direction and goes up from the oversold area, and they should sell when it changes its direction and goes down from the overbought area. This is a big mistake, because the price can keep on going down for such a long time, even when Stochastic goes up and leaves the oversold area. It can also go up for so many more candlesticks, even when Stochastic goes down and leaves the overbought area.

How to Use Stochastic Oscillator

Here, I am going to teach you how to use Stochastic Oscillator in a completely mechanical trading system. If you like to use this system, you have to forget everything you already know about this indicator, and try to use it in a completely new way which is in fact the real way that Stochastic Oscillator has to be used.

Stochastic Oscillator cannot be the only indicator that tells you when to buy and sell. It was not created to do that. It has to be used along with the price actions. If you look at Stochastic Oscillator only to get in or out of the market, you will lose, even if you have the other Oscillator indicators like RSI and MACD on your charts. It is almost the same with all the other Oscillators. You have to use them along with the price actions. It is the price action that has to give you a buy or sell signal first. Then you have to refer to the indicator and find out whether it also confirms the price action or not.

What Is the Price Action I Am Talking About?

Experience shows that in case of Stochastic Oscillator, nothing is better than support and resistance breakouts. However, to keep the trading system as simple and mechanical as possible, we mainly focus on the support and resistance levels, but I will also show you some examples from the support and resistance lines.

So, here is what you have to do:

1) Open a price chart and add the Stochastic Oscillator on it. You can make the signal line invisible, because we only need the main indicator line. If you are using MT4 platform, then leave the parameters to have the default settings which is 5, 3, 3.

Stochastic Oscillator Default Settings on MT4

This is how you can make the signal line invisible:

Stochastic Signal Line Made Invisible

2) Refer to the weekly chart and zoom out to see the candlesticks as short and thin lines. This helps you to see the strong, valid and most visible support and resistance levels better.

Why weekly chart?

I said weekly chart because this system works much better on this time frame and also the monthly. Indeed, all systems work on the longer time frames better and this system is not an exception. However, I will show you some examples of using this system on the daily chart, specially to follow the trends.

3) Look for the most recent and strongest support and resistance levels and plot horizontal lines below/above them.

As you see on the below chart which is related to EUR/USD weekly chart, there are two strong support levels that are so close to each other. One is at 1.1884 and the other one at 1.2041:

Strong Support Levels at 1.1884 and 1.2041

4) Wait for one of the candlesticks to close above a resistance or below a support level. That means the price action we were looking for, is formed.

5) At the same time that a candlestick closes above a resistance or below a support level, Stochastic Oscillator has to be in the overbought or oversold area respectively.

A long trade setup or buy signal forms when (1) a candlestick closes above a resistance level and (2) Stochastic Oscillator is in the overbought area at the same time.

A short trade setup or sell signal forms when (1) a candlestick closes below a support level and (2) Stochastic Oscillator is in the oversold area at the same time.

It is as simple as that. The most important thing in this trading system is that you locate the strongest and most visible highs and lows to plot the resistance and support levels. You should be careful not to take the weak levels breakouts.

Let’s get back to the above screenshot as an example. As you saw, we located two strong support levels at 1.1884 and 1.2041. According to what I explained above, if any of the candlesticks closes below one of these support levels while Stochastic Oscillator is in the oversold area, we will have a short trade setup:

Two Consecutive Short Trade Setups

Below, is a resistance level on GBP/JPY weekly chart:

Resistance Level on GBP/JPY Weekly Chart

And this is how the resistance level was broken and a long trade setup formed:

Stochastic Oscillator Long Trade Setup

Another long trade setup on EUR/AUD weekly chart:

Long Trade Setup on EUR/AUD Weekly Chart

Why Do We Need the Stochastic Oscillator Confirmation?

Almost in all the strong support and resistance levels breakouts, Stochastic Oscillator is already where it has to be. It is in overbought area when a strong resistance level, and in oversold area when a strong support level, gets broken. So, Stochastic Oscillator confirms 100% of the strong support/resistance levels breakouts. If so, then we don’t have to have it on the charts. We just need to wait for the strong support/resistance levels to get broken, and so we enter. Is the correct?

That is right, but we take the Stochastic Oscillator confirmation to filter out weak levels breakouts. Novice traders usually have a hard time locating the valid and strong levels. They don’t know how to zoom out to see the bigger picture of the markets, the strong highs and lows, and so the strong breakouts. They don’t know how to do it technically, and they are not patient enough to wait for the strong levels to form and get broken. So, they locate weak and invalid levels and get in after their breakout. It is when Stochastic Oscillator can prevent them.

If you are skilled enough in locating the strong and valid levels, then you don’t need to have the Stochastic Oscillator indicator on your charts. If you like to have it, then you should use it the way I explained above.

False Long Trade Setup Breakout:

False Long Trade Setup Breakout

Most traders think that they have to go long when Stochastic Oscillator turns around to go up and leave the oversold area. If you do so, you will have so many losing positions, because the price can keep on going down even when Stochastic Oscillator turns around and starts going up from the oversold area. It can go up a little and then go down to reach the oversold area again. It can repeat this for several candlesticks. It is the same when Stochastic is in the overbought area.

That is how most traders who use Stochastic, lose a lot of money. They want to hit the top and bottom of the movements, and so they go long or short, as soon as Stochastic leaves the oversold and overbought areas. That is why professional traders say that trading is not about buying low and selling high, or selling high and buying low. Trading is about buying high and selling higher and selling low and buying lower. Why?

The reason is that first you have to wait for a party to take the full control. You should go long only when you are sure that bulls have taken the full control and will take the price higher. You should go short only when bears have the full control. A bullish candlestick that causes the Stochastic Oscillator to turn around and leave the oversold area, doesn’t mean that bulls have the full control. If you get in because of that, most probably you will lose. Most traders who use Stochastic Oscillator indicator lose because of these mistakes, and then will call the indicator “money sucker” after a while. Stochastic is not a money sucker. It is those traders who don’t know how to use it properly.

As you saw, you should enter only when Stochastic Oscillator is in overbought or oversold area. You have to stay away from the market when Stochastic Oscillator turns around and is moving between the 20 and 80 levels. This is how it works.

Where to Place the Stop Loss and Target Orders?

When you go long, you should place the stop loss a little below the low price of the candlestick which has broken above the resistance level. When you go short, you should place the stop loss a little above the high price of the candlestick which has broken below the support level.

That is a reasonable stop loss in this trading strategy. When the breakout candlestick is too short, you can have a wider stop loss, probably above/below the high/low price of a few candlesticks before the breakout candlestick. It depends on the case and the trade setup.

Target order is a more complicated discussion in any trading system. Entry and stop loss can have clear and strict rules, but the question which is harder to answer is the exit. Where is the best level to get out?

Your target order can be from x1 to x10 of your stop loss. I suggest you to move the stop loss to breakeven when the price moves accordingly for x1 or x2 of your stop loss size. When you move the stop loss to breakeven, then there is no risk to hold the position. I suggest you not to get out with less than x5 profit. If you choose the strong and valid levels and then you enter on time after the breakout, you can make thousands of pips. Of course you have to follow the longer time frames if you want to be such a profitable trader.

To have a good understanding from the best exit levels, you have to know many other things. When you are following a trend, you should know about the Elliott Wave Theory to know when the trend is exhausted and it is the best time to exit. More professional traders have learned to enter based on a shorter time frame trade setup, but hold the position based on longer time frame, to maximize the profit as much as possible. For example, they get in based on the daily chart, but then hold based on the weekly and monthly, when they see that the trade setup that was formed on the daily chart, turned to a strong trend not only on the daily, but also on the weekly and monthly charts.

Novice traders need some time to learn all these things. When they are learning, they can still enter the markets based on the strong trade setups I explained above, and enjoy collecting x5 profits. They will learn to let their profit grow even more, when they become more experienced.

Trading the Support and Resistance Lines Breakouts

In addition to support and resistance levels, you can trade the support and resistance lines through this system and using the Stochastic Oscillator indicator. However, you have to note that locating and plotting the valid and strong support and resistance lines needs more experience and knowledge and is a tricky task compared to support and resistance levels. You will have more losing positions if you want to trade the support and resistance lines.

The same rules have to be applied here too. You can go long when a candlestick breaks above a resistance line and Stochastic Oscillator is in the overbought area at the same time. In case of the short positions, a candlestick has to close below a support line, and the Stochastic Oscillator has to be in the oversold area at the same time.

A False Long Trade Setup:

The below chart shows that a candlestick closed above a resistance line while the Stochastic Oscillator had not reached the overbought area. As you see, the price went down and retested the broken resistance line strongly after the resistance breakout:

A False Long Trade Setup

A True Long Trade Setup:

The below screenshot is self-explanatory. A good and valid resistance breakout which is later confirmed by valid and precise retesting, while Stochastic Oscillator is where it has to be. As you see, Stochastic Oscillator can be a great tool, if used properly:

A True Long Trade Setup

A Good and Valid Short Trade Setup:

A Good and Valid Short Trade Setup

Following the Trends

Trading the strong levels breakouts along with Stochastic Oscillator confirmation is a great way to follow the strong and continued trends. When it is proven that there is an ongoing strong trend, you can enter after the smaller levels breakouts on the same trend. If you set a proper stop loss in the way that was explained above, you will get out with a small loss in case the trend reverses. However, you will have a strongly profitable position if the trend continues.

As you see on the below screenshot, a resistance breakout ended to the too strong uptrend on USD/JPY weekly chart (#1). At the middle of the way, a resistance level formed at 103.726. It got broken later (#2), but then the market went sideways and hit the stop loss. After that, another resistance level formed at 105.433 that got broken several candlesticks later (#3), and although the price retested the level, it went up over 1800 pips after that. So those who had missed the trend, could get in at the middle of the way.

Following the Trends Using Stochastic Oscillator and Level Breakouts

The below screenshot shows the support levels that could be traded during a strong downtrend on EUR/USD daily chart. Although your stop loss can get hit sometimes, you can recover the losses through the several winning trades that a strong trend can give you:

The Support Levels That Could Be Traded

Why Was This Article Written?

This article was written to give a detailed and complete answer to those traders who always ask about Stochastic Oscillator, its settings and the way it can be used. As I explained at the beginning of this article, Stochastic Oscillator is a popular indicator among traders, specially the stock traders. However, there are very few traders who know how to use this indicator properly, and so, 99% of those who use this indicator, always lose.

In this article, I introduced a simple and mechanical, yet strong, profitable and effective way to enter the markets using the price action (which is the best and most effective way to trade), and Stochastic Oscillator confirmation. Those traders who like to have more trading opportunities can use this system along with the other systems they use. If they follow the weekly and monthly charts, all they have to do is spending half an hour every weekend, to locate the forming and formed trade setups, and then entering the markets at the market open on Sunday afternoons.

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276 thoughts on “Stochastic Oscillator: A Mechanical Indicator for All Traders
  1. ravin tharinda says:

    WOW… great explanation. I have never seen an article like this before about Stochastic Oscillator. Thank you Boss.

  2. Carl V says:

    Wow! You are a wealth of knowledge, Chris!

    Thank you for this article.

    Very simple and powerful!

  3. Muhammad Hassan` says:

    Great,,LOved to see article about stochastic
    Thanks Chris Sir

  4. Nadi brh says:

    Thank you Chris for such instructive articles.

    But I just want you to note that when I see the Forum I see other trading systems like Fibonacci, Ichimoku, Elliot and the indicators that members are using to trade.

    You have always said that we do not need any other system but Candles and Bollinger Bands and yet I see that people forget this and like to complicate things.

    May I ask you to attract members’ attention to your main system by completing the ” Best trading system …” which is used on shorter times frames. Because doing so we all focus on one thing.

    Correct me if I’m mistaken but I think finishing a system completely will have more benefit.

    Thanks for your time and everything 🙂

    • Nadi,

      You are absolutely right. I am sure most members use one system to master it.

      On forums, people can discuss too many different topics and ask for the other members opinions. We cannot prevent them 🙂

      • Jae Task says:

        I have tried to suggest that people do not post topics called “too strong XXX” because it is misleading when the strategy being used is not BB+Candles.

        It might be a good idea to have separate areas in the forums for LuckScout strategies and non LuckScout strategies.

    • Michael . says:

      “Correct me if I’m mistaken but I think finishing a system completely will have more benefit.”

      “I fear not the man who has practiced 10,000 kicks once, but I fear the man who has practiced one kick 10,000 times.”
      -Bruce Lee

      Makes sense 🙂

  5. Luigi Barion says:

    Thank you Chris for this new lesson.
    have a good week.

  6. Oesha Roopram says:

    Great post. Very educational. Learned something new once again. Thank you Chris.

  7. Mandla Ndlovu says:

    Chris dont know what to say but im one of them who learn somewhere the wrong way of using this indicator and what I could pick up is it hardly goes together with MACD it was confusing me.
    Thanks a lot!!!!

  8. Siniša Matrix says:

    I learned more in a few months with LuckScout than 3 years with everyone else!
    Thank you a thousand times, Chris!

  9. Tafadzwa Chimuriwo says:

    What a comprehensive article. Just made me realize I didn’t know how to use Stochastic after all.

    Thank you Chris!

  10. TJ says:

    Thank you very much Chris. I never thought about using stochastic, but this can be a great help for me to identify the stronger SR.
    Since I found LuckScout, I learn something new every day.
    Thank you Chris to share your knowledge with us.

  11. Ashok Pandey says:

    Thanks Chris, for adding my knowledge about Stochastic indicator. Definitely it will help. Thanks a lot.

  12. Azharul Islam says:

    Hi Chris,
    I am completely speechless. No language known to me to appreciate you properly. Its an excellent article and best to my known. I salute you thousand times for your great explanation along with great examples. Your articles are the best remedy to wash away the dirty thinking from the brain.
    Best regards.
    Azhar.

  13. mehdi fallah says:

    hi chris
    wonderful and useful article again. i should say i was completely wrong to use stochastic indicator so far. thanks a lot for teaching us. i do not know how to be thanks.
    a question: as i understood we should use stochastic just in weekly and monthly time frames and locate set up on long time frames and enter to market based on the same time frames. am i right? if so, why we can not enter to market in daily time frame? or we use stochastic in locating the set up on daily time frame and enter to market in the same time frame?in the last screenshot you show it is possible to use the stochastic in daily time frame.
    thanks a gain metor

  14. Abubakar Omusa Abubakar says:

    Wow, with this knowledge, i am a better trader now. God bless you Chris.

  15. Andy Schofield says:

    A very helpful and explanatory article which has opened my eyes to an indicator I always thought should be useful but didn’t really know why until this moment. Thank you for that insight

  16. lloyd mudzengerere says:

    wonderful article chris. will never be dumb money again. used to buy in oversold areas when the signal line going up. why? you my ask. coz the so-called ‘gurus’ taught us so. this is topnotch classified infor I tell u.

  17. Goran says:

    I’ll must rethink about using indicators for brakeouts.Very useful article for our better performance and confidance.

    Thank you Chris.

  18. Nir Antman says:

    Although I personally dont use oscilators and only candlesticks & BB (LuckScout :), its amazingly educating to read anything you write Chriss.
    Thank you my teacher

  19. Prakash Raj says:

    Chris,

    Please Don’t post my comment.

    Instead of “What This Article Was Written?”, I think it should be “Why This Article Was Written?”.
    If I am wrong, please ignore.

    Thanks,
    Prakash.R

    • Prakash,

      Thank you so much.

      My error again: I edited the article after it was finished, but published the non-edited version 🙂

      Please kindly don’t hesitate to inform me about the errors like that.

  20. fawaz bamakrait says:

    thanks Chris .
    but would you allow me to left up my hat salute you for this valuable information .coz i was thinking like most traders buy when it’s in the oversold area, and sell when it’s on the overbought.

  21. Eka Praganta says:

    Thank you Chris

    Great article

  22. Himanshu Sahai says:

    Hi Chris Sir

    Great article.Great help for using stochastic oscillator.I have few questions regarding this:

    1.Are EUR/NZD,GBP/JPY and GBP/AUD weekly formed or forming long trade setup according to above trading system?
    2.Can we use stochastic oscillator with Candlestick+Bollinger band trading system to confirm trade setup?
    3.What is the correct pronunciation of stochastic?

    Thanks & Regards.

  23. Matej Zoran says:

    Thank you Chris! Really, really nice and instructive article!!

  24. Eka Praganta says:

    hello Chris.

    If we have taken the Stochastic Oscillator confirmation to filter out weak levels breakouts ,
    Do we still need to wait the price to retest the broken line again for confirming that the resistance/support line is valid or not ?

    Many thanks

    • Eka,

      No, you don’t have to. However, the price usually retests on the weekly chart, even by the next 1-2 candlesticks. That is really good because you will have plenty of time to enter after the setup. This is one of the advantages of using the long time frames.

      Above, you can see how the next two candlesticks retested when the resistance line was broken on USD/JPY weekly chart.

  25. Jean M says:

    Thx so much Chris. As someone that uses the stochastic and trades on s&r levels i have always wondered why the trades i look at often go my way first and then go the other way. Many times i have not gone in a trade because the stochastic i thought was not agreeing with what i was seeing.Now i understand why…thx again

  26. Chris Long says:

    Thank you Chris, A very timely article as l had installed the stochastic indicator on my charts 2 weeks ago, but with little joy.

  27. Eric Sarayar says:

    Great article Chris. Thanks

  28. M T says:

    Chris, I am learning a lot with your daily articles.
    For a novice trader, like me, your teachings are the holly grail!

    Thank you a lot for sharing your knowledge and helping us understand how trading works 🙂

  29. Linz H says:

    Very clear and informative thank you Chris and thank you for your time.
    Kind regards,
    Linz

  30. alaa mahmood says:

    hi chriss thank you for real learing

  31. Peter Mackay says:

    I am getting very confused. With all of these indicators out there I seem to be just getting to know one, when another one is introduced. Chris, can you tell me what are the basic indicators we need?? I am 68 and school is a long way behind me.

    Thank you for your tireless work.

  32. Linz H says:

    If I can add a further question please Chris? Basically you have said that Stochastic’s should only be used as a rule in confirming support/ resistant breakouts (selling lower/buying higher) and should not be relied on for confirmation of reversals (selling high/ buying low).Is that right? In my weekly screenshot the far left is your illustration of buying higher, further to the right are BB breakouts and Stochastic confirms reversals too.
    Stochastics should be ignored in these instances Chris is that what you mean?

    https://charts.mql5.com/8/114/euraud-w1-pacific-financial-derivatives.png

    • Linz,

      Stochastic confirms the reversal signal formed by candlesticks always, when the candlestick pattern is strong. If the candlestick pattern is not strong enough and you enter just because stochastic confirms the reversal, then most probably you will lose.

      That is why I mentioned that the price action has to be the first that gives you the signal.

      Please let me know if that answers your question.

      • Linz H says:

        Yes it does. I understand Stochastic’s has to be in oversold or overbought areas in both instances of strong continuing trends and reversals but always secondary in confirmation of the strong price action signal.
        Clear now thank you for your clarification.
        Kind regards.

  33. Nick M says:

    How do you tell when a support/resistance level is strong?

    • Nick,

      They have to be based on the most visible highs and lows. Zoom out and you will see them.

      Ask me when you don’t know whether the high/low you have found is strong enough or not.

      • Michael . says:

        In the last screenshot of the article, there are many support/resistance levels drawn. Are they really strong enough? I was drawing lines only on the big highs and lows that happen maybe once a year or even less frequent. Am i exaggerating and do i need to be more forgiving and include the smaller levels too?

  34. MUSTAZAH ABDUL RAHIM says:

    Thank you very much for this knowledge Chris..

  35. Brett Bills says:

    There is so much information out there about different oscillators and how to use them it’s always difficult to know if you are ever using them the right way or not. Thanks Chris for taking the time to explain things in a way that easy to understand and put to practical use. As always great article.

  36. Ambrose Ugbenu says:

    Thanks so much Chris for this article. So insightful and educative.

    Regards.

  37. Mandla Ndlovu says:

    I concluded with quit this indicator its a no no for me

  38. Himanshu Sahai says:

    Hi Chris Sir

    I questioned you-Can we use stochastic oscillator with Candlestick+Bollinger band trading system to confirm trade setup?

    You wrote-

  39. Himanshu Sahai says:

    You wrote-I don’t think so. Stochastic is usually between 20 and 80 levels when candlesticks + BB setups form. That doesn’t mean anything.

    Your reply to Linz-Stochastic confirms the reversal signal formed by candlesticks always, when the candlestick pattern is strong.

    If stochastic is usually between 80 and 20 levels then how would it confirms the reversal signal formed by candlesticks pattern.Actually sir i got 2 different reply for my question that’s why i am little bit confused.I think sir you know what i want to ask.Please reply.

    Thanks & Regards

    • Himanshu,

      When I mentioned “Stochastic confirms the reversal signal formed by candlesticks always, when the candlestick pattern is strong…” I meant an indicator that always confirms the setups, don’t have to be used. We use an indicator to filter out the bad setups. It doesn’t have to be used when it cannot do that.

      Both the answer I gave you and the one I gave Linz are the same.

  40. PREM KUMAR says:

    Sir,
    The below paragraph is from the above article. I think we have to change the wordings overbought and oversold

    The same rules have to be applied here too. You can go long when a candlestick breaks above a resistance line and Stochastic Oscillator is in the oversold (overbought) area at the same time. In case of the short positions, a candlestick has to close below a support line, and the Stochastic Oscillator has to be in the overbought (oversold) area at the same time.

  41. Abbu Zabbu says:

    Thanks so much Chris,
    We learned a lot from you to which I am grateful for your contribution of knowledge and helping novices by giving them the profitable strategies.
    Having said that I would request you to highlight your thoughts on using and risk management by using OPTIONS as hedging so that we would less risk and make good profits in long term. Once again a big THANKS.

    • Abbu,

      Thank you.

      You mean I tell you how to control your risks by hedging?

      • Abbu Zabbu says:

        Great appreciation on the vast knowledge that you carry, for learners like us if you could highlight your thoughts on controlling the risks by hedging until we are in the safe zone would be highly appreciated. Any strategies that could be used as hedging if stop loss is not used initially in. By this I believe we can eliminate the risk of stoploss.
        You are Master no doubts.
        Thanks Chris for replying Iam grateful.

        • Abbu,

          I believe controlling the losses through hedging is the worst way. That is not a good option at all and will be ended to margin call and heavy losses finally, because when you stop losing through hedging a position, then you take new positions which can be losing too, and then you have to repeat the same here. That kills your account.

          The best way is that you wait for the strongest setups, and limit your risk with a reasonable stop loss. You get out with a small loss when the market goes against you, but you recover your losses with the good trades.

  42. marek herde says:

    Greatly appreciated! Although I don’t use indicators like MACD and Stochastic, I will have a go and check it while locating strong setups. Really helpful. Thanks a lot!

  43. Paul Br says:

    Thanks, Chris.
    Very instructive article.

  44. Steve K says:

    Thank YOU Chris..much appreciated but am already in love with bollinger bands and candle sticks.
    Happy Trading!

  45. Stephan Venter says:

    Thanks Chris,

    I always read all the articles, and mostly try everything. That said I have worked through the 5 steps to become a successful trader and from there I mainly only take notice of all the different strategies that does not include candlesticks and Bollinger bands. I do combine Fibonnaci Retrenchment to help me set my target profit. I have been demo trading since November 2014, and am currently saving up to open my first live account. In the mean time I keep on demo trading and making sure I know my trading system 1000% to reduce the risks that I will take once I open my live account.

    Again thank you for all the invaluable information you make available to us.

    God bless!!!

  46. Jae Task says:

    Chris, a quick question about picking support / resistance levels. Should we use the high/low of a candle or switch to line chart and use the close price instead?

    Thanks

  47. Di White says:

    Hello Chris,
    is the overbought on stoch, a breakout on the upper Bollinger band and vice versa?
    Thank you

  48. Nicolaas Kolz says:

    Very good article Chris, thank you very much. I wanted to ask you why didn’t you post earlier, but thought afterwards maybe you kept it for just the right time…and the timing seems right once again 🙂 Thanks again

  49. Danuta Tarnowski says:

    Step by step the trading becoming much more clear.
    Thank you for sharing your knowledge with us.

    • gbade afolabi says:

      Thank you Chris. It is clear. As you said 99% use it wrongly including g me. Thank you once again.Is it possible to update old posts not in tune with the current methods?

  50. Amanda L says:

    Incredibly informative. As always, you put into words what we may have observed with puzzlement and even given up on.

    To your point, I had removed Stochastic from my charts since those %D and %K crossovers were rarely helpful. They seem popular with scalpers, whereas at this point I would be happy to trade like once per decade. 🙂

    Now I can add Stochastic back in for its intended purpose to confirm S/R breakouts. Thank you!

  51. dragan m says:

    Hi Chris,

    Is it better to use it with 5,3,3 settings, or slower 14,3,3; or 20,3,3?
    I like it more with slower settings, but i don’t know what is better.
    Thank you for everything 🙂

    Dragan

  52. Anders Amd says:

    Perfect article! Thank you very much.

  53. Joshua Chan says:

    HI Chris,
    THanks for the great articles..
    I learn so many tools and stocastic also my favorite..
    I just dont know how to use it in my trading..
    I saw some explanation about Stocastic on youtube,how to use it..but ur explanation is the best..
    But maybe this indicator is not suit for me..cause my small accounts..
    Any idea or solution..how can we use it in shorter time frame like h4..

    Thanks

    Joshua.C

    • Joshua,

      Any indicator or trading system can be used on any time frame. The problem is that shorter time frames create more false signals and setups, and need more time and energy.

  54. Chris Esty says:

    Chris,

    Thank you for sharing this information. Unfortunately, I made a mistake of paying $299.00 for an indicator that essentially provides the same information. I wish I knew about this prior to that.

    I’m thankful that there are people out there such as yourself, who tell it like it is, and are generous to share such advice without charge.

    Fortunately, I’ve only been trading from a demo account thus far. Nevertheless, I take it very seriously.

    I came close to giving up on trading because I screwed up so many times. But a light turned on one day, and I realized that I should be thankful for the mistakes I’ve made.

    Failing has helped me to become a better trader. And I trust that if I don’t give up, one day I will be a successful trader. I look forward to that!

  55. Jae Task says:

    Honestly Chris. This is just incredible. Thank you

  56. mehdi fallah says:

    hi chris
    the others idea about that such article is not necessary is respectful by me but i strongly asked you write the most important tools such as this article again and again .
    if a ask 2 question more please
    1 -in a long set up , if a resistant level broke with a candle by its shadow and the next candle was a bearish and closed above the resistant line, could be accept this candle as a closed over resistant line or the candle that closed over the resistant line should be the break out candle ?
    2- by macd bar i can distinguished the strong high and low in the chart( i mean the the major and minor high and low ) how can i know this strong points on the chart with no indicators?
    thanks again

    • Mehdi,

      1) Yes, that means the level is broken.

      2) Your eyes have to get used to locating them. It is experience based. You can zoom out to see the bigger picture. Plot horizontal lines above/below resistance/support levels. Revise them and delete the weak and keep the strong ones. Be patient and wait for the price to reach those levels.

  57. moaied suhail says:

    thank you Mr. Chris so much for shearing you knowledge.

  58. B. Hairro says:

    Hi Chris,

    Thank you so much for such very educative and easy to understand article.
    As a novice trader, I need your confirmation and correction on these;

    1. If we miss a too strong long/short trade setup and it is to late to enter or there is no continuation setup on the BMB or DBB, we can wait and use Stochastic oscillator as a confirmation to go long/short on any valid support/resistance breakout. Am I right?

    2. After I saw and tried to find it myself on mt4 by referring to your previous examples, I noticed that it is much easier to spot and plot a valid support/resistance line by plotting a horizontal line rather than plotting a declined/inclined line. Do you have any recommendation for novice traders about support/resistance line?

  59. Abayomi Pelemo says:

    Great article Chris. I think I might give it a try. Find it more useful and reliable than macd and RSI. But the truth is in knowing how to read and use an indicator that matters. Thanks a lot Sir.

  60. Linz H says:

    Chris,

    You said in this article:
    “To have a good understanding from the best exit levels, you have to know many other things. When you are following a trend, you should know about the Elliott Wave Theory to know when the trend is exhausted and it is the best time to exit.”
    I am unfamiliar with Elliot waves. I see it in your dictionary but it is concise. To you wish to expand on this in the future?

    Kind regards.

  61. Len Ekenstam says:

    this is my second comment to the lesson on using the stochastic correctly. having reread the lesson i am beginning to understand more and possibly applying it to my trades. using the charts helps greatly along with your explanations. i told my grandson about it since he is trading live. i made two trades yesterday one stopped out and the other hit my t/p, but the s/o was the larger of the two. learning slowly.thanks for what you do. waiting for your no risk plan like everyone else. len

    • Len,

      Thank you.

      Does your grandson also trade ? 🙂

      • Len Ekenstam says:

        hi chris, yes my grandson is trading live but only with a small account and increasing very slowly. he is very intelligent and is a problem solver for other companies that run into trouble when their systems don’t work. i cannot explain better what he does he helps me a lot when i cannot fix the problem on my own. i have encouraged him to join LuckScout but don’t know if he has. i also advised my son to join for the no risk system hopefully to be pro traders which is my goal.i read every article that you provide and read again and again to better understand and apply to my trades. don’t give up on me and i promise to persevere and become successful. thanks for all that you do. len

  62. Tulio Araujo says:

    Thank you Chris, as always teaching us how to trade properly

  63. Torsten Feix says:

    Hi Chris, thanks for this great article.To locate the strongest support or resistance level we can plot the fractals on the monthly timeframe? You think that this is possible? Have a nice day.

  64. Steve Edwards says:

    Always enjoy your articles … I learn a lot from them…Thanks Chris

  65. Pivotal Springboards says:

    When oversold does that indicate a lack of willing buyers at that higher price, thus market pressure for price to go down? When over bought does that indicate a lack of willing sellers at that price, thus market pressure for price to move upward?

    • That is right.

      When Stochastic Oscillator reaches the oversold area, it means bears have taken the full control.

      When Stochastic Oscillator reaches the overbought area, it means bulls have taken the full control.

  66. Gert Jordaan says:

    Hi Chris, just a question, can the stoch be used for divergence like the Macd?

    • Gert,

      I see that some traders talk about it, but I think that it doesn’t make sense. Stochastic is a tricky indicator. You should only use it the way I explained above, otherwise you will have a lot of losing positions.

  67. Merry Burhan says:

    Many thanks! It’s so amazing how much knowledge I learned from you, every single new article!
    Thank you, thank you, thank you!

  68. Jordi Pararols says:

    Thank you Chris for this educational article. I appreciate a lot!

  69. Justice Dollargreen says:

    Thank you for this insightful information.

  70. fawaz bamakrait says:

    thanks Chris.
    but is there any you tube or training for how to plot the support and resistance.

  71. Iva Hampl says:

    hi Chris I don’t have stochastic with 5 3 3 to choose in my platform only 14, is it same setting( I dont think so) or I shoud forget it

  72. Juan Gutierrez says:

    Chris,

    so i cannot use this oscillator with daily charts? it is not that effective? or can i use it?

    Thanks.

  73. Frank Totti says:

    Besides the free education you are giving us, I found it amazing how patient and kind you are in answering our questions.Thank you so much

  74. Len Ekenstam says:

    hello again chris, just read the article on stochastic for the third time to refresh my memory. i now have a better understanding how to use this indicator.but not 100%. slow learner and poor retention. that is what happens when one is pushing ninety. hoping to progress to where i can make some useful contributions and help others. my question is since my account is very small what are the best time frames should i use to get the most realistic results using a demo account? len

  75. Barbara D. says:

    Chris

    Thanks for explaining this so clearly. Another non complicated system.

    Take care.

  76. Mark Lockyer says:

    Hi Chris, Greece is due to pay it’s debt by the 30th of this month. In terms of market reaction on that day do you think we might have another Swiss Franc reaction on or around the 30th? What I mean by this is do you think there might be a greater chance some brokers go broke (financial ruin) because the markets become more volatile? I understand you cannot say definitely what will happen and you cannot advise on what to do with our money (leave with our brokers or withdraw it until things calm down). I’m not wanting to cause distress but just wondering what your views are and what your strategies might be? Thanks.

    • Mark,

      I think it is such a long time that markets and the world are dealing with Greece problems, and they have already reacted to them. I don’t expect to see a severe reaction like what you saw on Jan 15. The Jan 15 event was a sudden and unexpected event, and so it caused a sudden and unexpected reaction.

      Only in once case we will see a sudden and strong reaction. That is when the Greece problems ends to sudden and unexpected changes by big central banks, which is so unlikely.

  77. Javor Andric says:

    Hi Chris!

    I have a suggestion for a future post. What do you think about Elder’s triple screen trading system? I guess you have heard of it.

    With this system, you have to use a MACD indicator with the weekly chart to decide whether the market is going up or down. Then, in the daily chart, you wait until the Stochastic reaches the overbought/oversold areas.

    The key point here is that, knowing in which direction is the market going in the long term chart, you can filtrate the bad signals that the Stochastic gives you.

    If the weekly is pointing up, you will buy when the Stochastic is in the oversold area. And, if the weekly is pointing down, you will sell when the Stochastic is in the overbought area.

    In short, that’s it. But I would like to know what you think about it, if you have tried it or maybe you know someone who has.

    I hope you like the idea. Cheers!

    • Javor,

      Thank you for sharing the idea.

      It works like a charm in back-testing. We can try it in real time trading to see whether we can act like when we back-test or not. We need few MACD bars on the weekly chart first that show a special direction clearly. Then we should refer to daily and wait for Stochastic. It seems a candlestick signal along with stochastic helps a lot to enter at the right time based on the daily chart.

      A few questions for you:

      – Have you been using this system for a reasonable period of time like one year?

      – Do you use MACD bars or the traditional MACD?

      Thank you.

      • Javor Andric says:

        Hi!

        I only tried it for some weeks a few months ago but wanted to give it another go now that I have more time at the end of the day. That’s why I asked you about your opinion.

        I used it along with the LuckScout’ MACD, which was great because you can use two different colors with the bars. In the original Elder’s proposal, you have to wait until two consecutive MACD bars in the same direction.

        If you like, I can demo-trade this system and write my conclusions for the blog in the end if you don’t have anything better about this by then. Let’s say six months?

        Cheers!

        • Javor,

          That is a great idea. If you like to try this system for your own use, you can do it on a demo account and then share the result with us here on LuckScout if you like. I appreciate it, and I am ready to assist.

  78. Shalewa A says:

    Meeeeen! I love the way you write 🙂 , You make it so simple! Your delivery is just fab! I won’t be surprised if you were once a lecturer 🙂 . Like you said in one of your articles, novice traders try a lot of indicators until they know what works for them. I have also been experimenting with a few, MACD (which has not really been useful since it isn’t the traditional one that is on MT4 so it will soon be off my charts), RSI, Fibs (found I was too scared to even open any trade so only use if necessary to calculate target sometimes) and a few moving averages and our Bollinger bands! I know some jaws are dropping now, hahaha. Guys 🙂 , I am just experimenting 🙂 and they are not all on one account, hahaha. Now seriously, since I intend to trade the trends, I will concentrate on the RSI and this Stochastic indicator on my main account and see how it goes.

    Thanks for all you do. You have a selfless spirit, more blessings to you. Thanks 🙂

  79. Shalewa A says:

    Hi Chris,

    there is an omission in the word ‘below’ in the first sentence under where to place stop loss. “.. a little below,.”

    Thanks for all you do.

  80. stephen k chabari says:

    Thanks chris,
    These are very well explained instructions.I agree with you that any system can make money in if used properly and with a lot of patience i.e waiting until the setups occurs. All ones needs is to have a smart tutor like yourelf.

  81. Md. Saiful Islam says:

    Sometimes Oscillator shows price is in the oversold/overbought zone but price continuously goes far (up or down) from this zone. No body knows which is the best Oscillator parameter. In this situation Candlestick confirmation and trend line analysis is needed to go for entry. Chris, Please give deep explanation. Which is best parameters as per different time frame?

  82. Dionisis Stamatiadis says:

    Hello Chris,
    Thank you for this new tool. May I ask a question about the use of it in shorter time frames?

    Based on one of your past articles, when we find a strong but not 100 strong setup we can refer to the shorter frames and wait for a strong support/resistance level breakout. Do you think we could use the stochastic oscillator to confirm these breakouts?

    Thank you in advance,
    Dionisis

  83. Mark Lockyer says:

    Hi Chris, I noticed some of the GBP pairs look like good setups as per the weekly stochastic views. Can you comment please? Thanks

  84. Abhaya Rajakarunanayake says:

    Hi Chris,

    Hope you are well. I have a small clarification – is the direction of the oscillator important as well?

    For example,if there is a resistance breakout, and the oscillator is above the 80 mark, does it matter if the oscillator is heading up or down? Just wondering whether a downward trending oscillator would be an indication that the break out would not be as strong and if the indicator was trending upwards.

    And vice versa for a support breakout of course.

    Apologies if this was a stupid question, I am a newbie to.

    cheers
    Abs

    • Abhaya,

      No, the direction doesn’t matter. Just being at overbought or oversold area means that most probably bulls or bear have taken the full control. This is all we want to know from Stochastic.

  85. Ralf P. says:

    Hi Chris, its hard to stay patient waiting for the too strong continuation or reversal setups. Therefore jumping on existing trends is the next thing I will try using your suggestions. Great article again, thanks a lot.

  86. Chandima G says:

    Dear Chris,

    I can’t stop reading this article again and again. This is the one of the best few I’ve seen ever on any subject. My language is not rich enough to thank you for what you are doing for us!

    Chandima

  87. Chandima G says:

    Dear Chris,
    I love this strategy and the below is the first long trade setup I found on weekly chart on Gbp/Usd. Would you pls let me know whether I’m correct? Thank you sir!

    https://charts.mql5.com/8/158/gbpjpy-mn1-nord-group-investments.png

  88. Jason T says:

    Thanks again Chris,

    Clear and simple.

    I’m seeing very little in the way of reversals lately and have been monitoring possible continuation possibilities more, especially where I have missed the start so it’s great to have a way of getting more confidence on judging these support and resistance breaks.

    Wish I’d known this looking at GBP/NZD bollinger band break out on weekly time frame in early May ! It would have given me more confidence to enter.

  89. Rufus Williams Jr. says:

    In the EURUSD WEEKLY example you say:

    “Wait for one of the candlesticks to close above a resistance or below a support level. That means the price action we wanted is formed.”

    I am confused about the CandleSticks,

    There does not seem to be a pattern or anything special about them. Just plain Bear candlesticks.

    True the Stochastic is in the sold Over-Zone and that all.

    Is that really enough to enter a trade without any candlestick pattern?

    It seems that you are using the Support & Resistance with the Stochastic and nothing more.

    Is that true, are there no Candlestick Patterns Needed!

    • Rufus,

      As the article title says, this is a mechanical system which is based on the level breakout and Stochastic. So here we don’t look for a candlestick pattern.

    • Michael . says:

      Rufus,

      Isn’t it amazing how from time to time when reading an article, another piece of the puzzle just shifts into place and you begin to see more of the whole picture?

      In any trading systems we only go long/short when bulls/bears have full control, because those trades are the safest. Every trading system must have a way to determine when this is the case. The two systems you are comparing each have a different method of doing that. In the candlestick + BB system we wait for BB breakout and a strong enough candlestick pattern. In the support/resistance breakout + stoch system we wait for breakout + overbought/oversold. If that requirement is met, it means one of the parties has full control and we can go long/short. Nothing else is needed, so no candlestick pattern is needed in this mechanical trading system.

  90. Hosea Tumewu says:

    Thanks for yet another useful lesson Chris, I’ve actually considered using this method before, but I ditched it since I was analyzing it short TF such as M30. It’s nice to have someone experienced as you justifies this.

    Anyway, I just went short using this method in NZD/JPY Weekly, seems to be a strong and valid one to me.
    Tell me what you think about this Chris, Thanks again for the lesson 🙂

  91. Di White says:

    Hello Chris,

    which parameters are the best in Stochastic? the default ones 5,3,3 or 9.5.7? what is the difference and why we change the parameters?

    Thank you

  92. Ted Mahachi says:

    Thank you Chris.

    This is awesome!

  93. Lutendo Ramuedzisi says:

    Thanks Chris for such an insightful article. I use to fall in the group that used overbought to sell vice versa. Now I know better and will practice this method. One my favourite points in the article is this: “Trading is about buying high and selling higher and selling low and buying lower. Why?” I will have to read this article a number of times as it has so many valuable points.

  94. Rufus Williams Jr. says:

    Hi Chris,

    It seems that you have skipped or
    over look my question above.
    Will you please answer it?
    Thanks,
    Love ya!
    Rufus.

  95. Len Ekenstam says:

    hello chris and others, just read the stochastic lesson for the fourth time.i understand it but do not see any setups that conform to this strategy. chris could you give some advice on drawing s and r levels or lines to guide us novices? it would help a lot to apply this strategy. thanks again. len

  96. Len Ekenstam says:

    hello chris, just reading this article for the fifth time and looking at the stochastic.many times the stochastic is barely above or below the 80/20 line while other times it is much higher or lower. does it make any difference how much above or below the 80/20 lines the indicator is? is there a difference in its effect? hope you can clear this up for me. len

  97. Karel H says:

    Thank You CHris for your skills, perfect explanation of stochastic oscillator.

  98. Kelvin Dube says:

    great article

  99. B. Hairro says:

    Hi Chris,
    When trading with the SnR, many times when I saw an SnR breakout and the Stochastic is already in the oversold/overbought area; when I switch to the shorter time frame like h4 or h1 of the same chart, their candlestick’s bodies are already broke out of the Bollinger Lower Band/ Bollinger Upper Band.

    I need your confirmation/correction if I’m wrong at this.
    |
    |
    v
    I noticed that the shorter time frame’s candlesticks will “bounce back” slightly against the bigger time frame’s direction for a while. If so, after the “bounce back” reaction of the candlesticks, I should wait for another resistance breakout on the shorter time frame of that same chart for a tighter stop loss. Am I right?

    • B. Hairro,

      Yes, you can do that. But please note that it makes the work more complicated and chances are you miss the movements. I prefer to enter when I see a setup on the same time frame.

      • B. Hairro says:

        Thank you so much Chris.

        I understand, waiting for the SnR breakout on the shorter time frame is time consuming, but I just think if I don’t do that, I would have to set a wider stop loss and my position will be too small. Thinking about $1000 account size with 2% risk for each position, as I’m a novice trader, I think there is no way I can even get a 10% monthly profit with 0.01-0.02 position on each trade (for a ide stop loss). At least for a couple of months, I have to do it.

        My last month’s demo account; I think I was just lucky that I got 67% profit with 5% risk on each position. I have total of 83 positions and I only won less than 20 of it (of course I hold my winning positions). Obviously, I over-trade and set my risk too high. Not to over-trade for a novice trader is much harder than said. You’re absolutely true,”discipline take times to build up”.

        However, I felt much better with my 2nd demo account with 2% risk on each position even though my profit is only 3% for now (3 more weeks to finish).

        For now, I analyze the charts with my computer for the longer time frames, but I wait and take my position on the shorter time frame of the same chart with my mobile phone. There is also a mobile apps called ” Calculators”. I used it to calculate my positions

        Again, thank you so much for all the lessons Chris. 🙂

        • B. Hairro,

          Congratulations for your excessive success. You are doing good. Keep on repeating your success on your demo accounts for now. 67% profit with 5% risk on each position is good. Making 67% profit from 83 positions while only 20 of them have been winning positions means that your losses are small and your gain are big. This is really great and is what any trader has to achieve.

          Success rate which is the ratio of winning to losing positions is not important. Sometimes a trader has a 95% success rate, but he is not profitable because the gains he has from his winning positions are too small and the losses of his losing positions that are only 5% of the positions he takes, are too big. He will not become profitable as long as he doesn’t learn to limit his losses and maximize his profits.

          • B. Hairro says:

            Thanks Chris.

            I do not really know how to say thanks to all LuckScout team.

            I followed all the rules and stay disciplined as much as I can with those rules. It is of course I followed not just the strongest setup which consist the main trading system (Candlesticks & Bollinger Band), but also Kamel’s trading system (DBB), the 50SMA and resistance/support line along with the Stochastic as confirmation. I also look at the big news sometimes for confirmation.

            My only problem is, I still can’t stick religiously with my discipline. The psychological part is the hardest one. I hope I will do much better this month.

            God bless all of you LuckScout team. 🙂

          • B. Hairro,

            Following several systems at the same time can make novice traders not to stick to the systems rules. It makes it harder to develop the developing of the trading discipline.

          • B. Hairro says:

            Thanks Chris.

            I admit, for the first month, it was hard to stick to the system. However, at the end of the month, I’ve come to this conclusion that I must stick to my own set of rules, and I’m happy with my result. Here is what I do;

            I check the 50SMA everyday.

            If the price is too far from the 50SMA, exhausted or ranging, I wait for a too strong trade setup (the main system). I if I miss a too strong setup, I wait for a resistance/support breakout

            If it is a healthy trend, I wait for DBB (BB1) breakout, a continuation setup on the middle band or 50SMA. (Kamel and Peter’s Trading System)

            If none of the above is about to happen, I left the chart for tomorrow.

            It took about 2 to 3 minutes for me to ask and answer these questions for each graph for now. 🙂

          • You are on the right track.

            “Repeat the right things, long enough, consistently.”

          • B. Hairro says:

            Thank you so much Chris. Sure! I will.

            “Repeat the right things, long enough, consistently.”

            Until it become a habit and there will be no struggle anymore. 🙂
            God bless all of you LuckScout team.

          • Rufus Williams Jr. says:

            B. Hairro,
            May I suggest that you R-E-L-A-X Pick (1) one system and for get the others for now. Just demo ONE SYSTEM. By jumping around and mixing system, you are only delaying your success. PICK ONE & WORK IT even when you lose with it DO NOT CHANGE IT. You are changing systems because you want to be successful, but you never will be changing and adding to systems.
            PICK ONLY ONE & STICK WITH IT
            THEN YOU WILL SEE SUCCESS.

            Love ya!

          • B. Hairro says:

            Thanks Rufus.

            Yes! I do still religiously stick to the system. It is just that, I followed all the trading system outlined here; https://www.luckscout.com/become-a-profitable- -trader-in-5-easy-steps/
            as Chris said, “We have also introduced a different approach in using the candlesticks and Bollinger Bands to trade. It is more mechanical and less technical, and you can use it as a second trading system:” for the DBB system, and “Another mechanical trading system is the 50-day moving average:” for the 50SMA trading system.

            As you may notice, I didn’t follow any other trading system other than those outlined in the web page above. 🙂

        • Matej Zoran says:

          Congratulations Hairro!

        • Rufus Williams Jr. says:

          B. Hairro said,
          “I understand, waiting for the SnR breakout on the shorter time frame is time consuming, but I just think if I don’t do that, I would have to set a wider stop loss and my position will be too small. “

          Please understand you have the right to make choices in this life.
          YOU DO NOT HAVE TO SET A WIDER STOP LOSS for any trade you take.
          That means, you do not have to take the trade if you can’t get @ lease 2 time the profit of your stop loss.
          PASS ON THE TRADE another one will come.
          It no shame to pass on a trade.

          Love ya!

    • Rufus Williams Jr. says:

      B. Hairro said;
      “I noticed that the shorter time frame’s candlesticks will “bounce back” slightly against the bigger time frame’s direction for a while.”

      B. Hairro,
      You seem to be obsessed with the smaller time frame.

      It’s your choice course but there’s nothing that time frame can do for you if you are trading the larger time frame.
      It is control by the larger time frame.
      Example: one (1) candle on the 4 hour chart is 4 candles on the 1 hour chart, 8 candles on the 30 minute chart and 16 candles on the 15 minute chart.
      The larger time frame is used to see give you the direction and tell you what’s happen on the smaller time frame not the other way around.
      When you look at the smaller time frame all you see is what’s happening in the larger time frame. So for this reason I would suggest you do not look at the smaller time frame unless you are going to trade it. It will only confuse you.

      • B. Hairro says:

        Rufus,

        Thank you so much for the advice.

        I admit, I was obsessed with the smaller time frame at first. However, I do not trade the short time frame. I just remember and tried to follow one of Kamel’s article. He did mentioned that he enter the daily chart based on the shorter time frame here; https://www.luckscout.com/daily-versus-15min-chart/
        I just think that it good for me to wait for better entry & tighter stop loss based on the shorter time frames. 🙂

        • Rufus Williams Jr. says:

          B. Hairro said: He did mentioned that he enter the daily chart based on the shorter time frame here; https://www.luckscout.com/daily-versus-15min-chart/

          May I suggest you reread the article you are referring to. He never said he enter entered the market based on anything from the 15 minute time frame.
          This is what he said: “Now let’s see how I would trade this up movement if I wanted to follow the 15min chart”
          Please note the word IF I WANTED TO FOLLOW THE 15 minute CHART.
          What he did was compare the 15 minute with the daily.

          Please take your time and read it slow for better understanding and I think you will that is what he did.
          Only compared the two time frame on the same trade.
          Please know that trading the low time frame is a lot of work and cost you more because you pay for every trade you take. So the question WHAT IS YOUR TIME WORTH TO YOU?

          Love ya!

          • B. Hairro says:

            Thanks for reminding me Rufus. 🙂

            I do not trade the short time frame. I trade the daily chart based on the short time frame, but closed my trade based on the daily of longer time frame..(I hold it as long as my profit runs with reasonable stop loss replacement) I look at the shorter time frame to find a resistance line for a better stop loss size; if I locate any resistance/support line, I will set my stop loss just a little below that resistance line. If I didn’t locate any, I’ll wait until there is a resistance/support breakout.

            I do not simply trade based on the short time frame if there is no trade setup on the daily chart. Plus, I don’t wait in front of my computer. I wait just by looking at my mobile phone and took my position immediately after a resistance breakout on the shorter time frame. 🙂

          • Rufus Williams Jr. says:

            OK Then perhaps I misunderstood you.

            Love ya!

          • B. Hairro says:

            Its okay. It is a great reminder from you anyway my friend. 🙂

  100. Danuta Tarnowski says:

    Hi Chris
    This question might be a little bit off track.
    Would you be able to explain as how important the correlation is trading the Pairs.

    Thank you

    • Danuta,

      You don’t have to be worried about it as long as (1) you take the too strong setups, and (2) you choose only one setup which is the strongest when several setups form at the same time.

      For example, when all NZD pairs form a short trade setup, you take only one of them which is the strongest. Therefore, if it goes against you, you lose only in one position. But if you take all of them, they can wipe out your account.

      Read this:
      https://www.luckscout.com/ -trading-big-drawdowns-and-the-solutions/

  101. Abbas Babs says:

    Thanks for sharing Chris

  102. Haikal Sedayo says:

    Thank Chris, I never read or tough to use this indicator this way. You are wonderful sir, thank you very much 😀

  103. Quint says:

    Thank you Chris,

    I have a question:

    I understand that to be able to break a strong level you would need momentum and because Stochastics is used to identify the weak level breakouts, the weak level breakouts must have _no_ high momentum. Otherwise we can’t differentiate.

    but why can there be no high momentum when a weak level breakout occurs? How is having high momentum reserved for strong level breakouts? I get that it is not _required_ but why should it not be possible?

    • Quint ,

      To break through the strong levels, the markets need two things. The first one is the money flood that makes the price move. The second one is the speed of the money flood. Markets don’t have a lot of time to break through the strong levels. If they spend a lot of time, then the dominant party gets exhausted and changes its direction, and so the price changes its direction before it breaks through the level.

      Weak levels can be broken much easier. In most cases, it is only us who see the weak levels. The market doesn’t pay any attention to them. The price just moves and the levels look broken to us whereas the markets don’t care about them at all. So just the amount of the money is enough to break the weak levels, and the speed doesn’t matter.

  104. Mark Lockyer says:

    Hi Chris. With big movements like the big candle on the GBPCAD for this week, I get nervous as to when to enter a trade for fear of a correction, in this case a downward or sell trade. The weekly candle has closed above the diagonal resistance line on the weekly and the stochastic remains above 80. If you have time could you analyse it please? Both the weekly and monthly have moved above the upper bollinger bands, though the daily is showing some possible signs of slowing down. To me it looks like a good long trade using the stochastic weekly method but it was such a big movement up for this week I get fearful it will correct itself.

    • Mark,

      Indeed it was the 2015.06.28 weekly candlestick that closed above the 1.9554 resistance level. So you had to go long after the 2015.06.28 weekly candlestick close, not now.

  105. Mark Lockyer says:

    Thanks Chris for the answer to my question about the GBPCAD. Another question is whether it may be a good time to re-enter the NZDJPY after your recent stochastic assessment where it was a successful sell trade. I did enter that trade and made some good profit. Currently, the weekly candle of the 5th July went up to retest the last diagonal support area and this week the candle has dropped to fall and close below the previous horizontal support level 81.426 from 2nd Feb 2014. The Stochastic is below 20 still so could this be a good re-entry on that sell trade? Thanks.

    • Mark,

      You are welcome.

      To enter again after a good trade setup, we have to have another good continuation setup. I don’t think it is the right time to go short based on what we have on NZD/JPY weekly chart. I am still holding my own position because I believe it can go much lower based on what we have on the monthly chart.

      • Matej Zoran says:

        Hi Chris
        I’m also holding my position, already wth nice profit. On Friday I have put an pending order z z

        • Matej Zoran says:

          Sorry I have some problems with my phone…
          I wanted to said that I have put pending order at 80.968, based on last small support, 7/16 candle. Do you think that this is too dangeres? Last few daily candles looks like a small wave to downtrend? Thanks!

      • Michael . says:

        Chris,

        Can you explain a little bit more about why it is not a good time to enter, based on the weekly chart and the stochastic mechanical system rules? Is the level that Mark mentioned not strong enough?

  106. Mark Lockyer says:

    Thanks Chris, this is where I still need some education. For example, if you can spare the time to explain, if you say you feel confident that the price will continue lower on the NZDJPY, why then do I not look for a good opportunity to enter again with a sell trade? I realise the first day of trade for this coming week may not be the best time because we have been analyzing the weekly chart, but what if one day this weak presents itself with a good candle set up or perhaps a good candle and BB setup? Would that meet your requirements for a possible reentry? Thank you so much for your time and patience.

    • Mark,

      You are welcome.

      We can always wait for good opportunities to enter the market and follow the trend when it is strong. But we need to see a good continuation setup to enter. A good continuation signal can be a good and strong candlestick pattern with a reasonable BB breakout, or a good support/resistance line or level breakout.

  107. Matej Zoran says:

    That’s right. I have taken two position and one is already close. The second one do not have TP and I have already put the SL lower than breakeven to be safe. Because of very nice trend which looks stabile I wanted to take another position, of course if there will be breake out.
    Regarding your comment I’m wandering if I’m not too greedy?

    • Matej,

      If a too strong continuation signals forms, we can take another position while the other position(s) are safe (SL is moved to breakeven). That is not greed. This is what we have to do as a trader.

  108. Jeffrey Sim says:

    Hi Chris,

    How many swing high or lows to the left of the chart do we need to use to draw the slant or horizontal S/R lines. I assume we need at least 2 points to draw these S/R lines ?

    If the Stochastic value is near/close to the lower/upper bounds when the weekly support/resistance has been broken and closed, can we still take the setup ? For example stochastic value is 21, and weekly support has been broken and price has closed below the support, are we allowed to take the setup ?

    thanks
    Jeff

  109. Matej Zoran says:

    Thanks for your answer Chris.
    I would like to take this opportunity and thank you and to your colleagues for all the work that you are doing for all of us. You and your work have strongly impact to my life and I’m really glad that I have got this opportunity.
    “If you believe you can achieve!” Mind power is working very well.:)

  110. Jeffrey Sim says:

    Hi Chris,

    Thanks for the reply. I have learnt many things from you and one of the most important one is to keep things simple and easy to understand.

    regards
    Jeff

  111. Maria S says:

    Hi Chris,

    I tried to analyze stock charts and planned to trade with it using this system and candlestick+bb system, but I found that stocks are hard to be analyzed because:
    1. They usually open with wide gaps (even on daily timeframe)
    2. They tend to be bullish most of the time

    These 2 reasons make me confused on how to trade stocks especially since you once said that we could trade stocks the same way as. Would you mind to explain this? Thank you very much

    • Maria,

      All we know about candlesticks and technical analysis has come from stock trading. Gaps are not any problem at all. You have to wait for the same candlestick signals to form.

      When the market is strongly bullish, you have to wait for a too strong continuation setup to enter the market and follow the trend. Like trading, good and strong trade setups hardly form on the stock market.

  112. B Chau says:

    Hi Chris,
    For the USA/CAD, The higher price 1.310 has breakout and Stochastic Oscillator shows overbought on the weekly chart, but it closed below the previous resistance 1.3060, even the following candlesticks pattern does not good, is it not enough for a short trade signal on your system? so that do we need to wait the next candlesticks which close above the resistance level for the confirmation, thank you.

    • > is it not enough for a short trade signal on your system?

      Not at all. We need a much stronger sell signal to go short. For now, there is no formed or forming setup on USD/CAD charts.

  113. B Chau says:

    Thanks your comments Chris.

  114. Xolani Ngema says:

    i always ask myself after reading great article like this one here in LuckScout. if Chris spend his one oh many minutes preparing this articles instead of making money but devoting his time to teach me oh any member of this group how to trade without paying a dime? when we make real money are we going to give this information to those of in-need like Chris does oh we will start charging people? just curious that its, anyway great article Chris and i thank every day i found you and your team god bless yull Regards Xolani

  115. ryan schille says:

    hey chris

    Just wondering if stochastic can be used on the 4hr and 1hr? specifically used to locate a s+r level breakout after a signal from the higher time frames.

    thanks

    • Ryan,

      All indicators can be used on all time frames. The only thing is that shorter time frames’ signals are less reliable and it is harder to trade the shorter time frames.

  116. Hosea Tumewu says:

    Why is it riskier to trade based on sup/res lines than levels? I think is it because levels are fixed and trendline can easily be shifted (but not broken) ?

  117. Nadi brh says:

    Chris in this article you have mentioned that you will explain how to use this mechanical system on shorter timeframes like Daily as well.

    Are you going to write other articles about it?

    Thanks

    • Nadi,

      I have some examples from the daily chart at the end of the article.

      • Nadi brh says:

        Chris

        Only the last chart is for the Daily chart!

        So this is my perspective of using the Stochastic and the price action on the Daily chart:
        1) We locate the strongest and most recent support and resistance on the Daily
        2) If a breakout forms we check the Stochastic just like the Weekly timeframe.

        3) You can go to shorter timeframe to have a tighter stoploss

        Am I correct?

        Thanks a lot for your patience

  118. Nadi brh says:

    And another thing.

    This is my definition of a price action, when price breaks a long term support/resistance level it will move towards the next long term level.

    So when we enter after a level breakout, can we set our profit level near the next support/resistance level?

    Thanks a lot Chris

  119. Nadi brh says:

    Chris

    I check this mechanical system and it has a high rate of success.

    But my problem is with identifying the valid support/resistance levels.

    In some instances, I know the level is strong but the market reacts choppy when it reaches that level.

  120. Charles Booth says:

    Are the s/r lines that the LuckScout robot draws good s/r lines to use this system? Thanks

  121. F. Kruse says:

    Chris i hope that you’re aware that you’re making a huge different for whose who love , but having a hard time learning it!.. thanks so much for all your help

    best regards
    F. Kruse

  122. PREM KUMAR says:

    Sir,
    Apart from S/R breakouts of trendlines and levels, can we consider candlestick closing above or below the bollinger middle band with stochastic in overbought or oversold condition respectively as good trade conditions?

  123. Nir Antman says:

    Hey Chris,
    In we don’t use the volume indicator that stock traders use (as far as I know), does the use of Stochastic have a thing with capturing volume in the market in a similar way that volume does in stocks?
    I ask it because after some testing – this works really well 🙂
    so I’m curious.
    Another BIG thanks from here mentor.

  124. Angus Tank says:

    Hi Chris,

    I see that you mention Stochastic indicator a lot. But how about RSI in comparison. I find Stoch whiplash a lot more, as it is more reactive than RSI.

    What are your thoughts when comparing RSI vs Stoch? Which one is better at what time?

    Thanks,
    Gus

  125. Jess S says:

    Thanks Chris, but I’m confused. It seems counterintuitive to go short when the stoch says oversold (vice versa for long). Does RSI get the same treatment (go short when RSI says oversold)? Perhaps you explained this already and I missed it? Thanks again.

    • Jess,

      Stochastic reaches the oversold or overbought area very easily and after forming a few bearish or bullish candlesticks. It doesn’t mean the market cannot go lower or higher. Indeed, most of the strong movements occur when Stochastic is in “over” areas.

      It is the same with RSI.

  126. Justice Dollargreen says:

    Thanks for this great article. Please can we say that other oscillators work in this faction like CCI, MACD, RSI, etc. Thank you for your honest and mentoring desire towards us.

  127. Stefan Chun Yin says:

    Hello Chris,

    I have 3 grouped questions:

    1. Is this strategy backtested (if yes how far back?)?

    2.And do I need to tweek it in the future? I mean when do I know that something does not work anymore and I need to tweek it?

    3. Is a 5 Reward/Risk not too far? I mean let’s say I entered on the break of the horizontal resistance at EURCHF. If I use a 5 R/R that means that price would nearly go up to where it was before the crash

    Thanks!

    Stefan

  128. Ivan Todorov says:

    Good evening Chris, first I`d like to thank you for this article! I also would be grateful if you explain how you plot the resistance/support level. From your article I read before you said that to consider a reliable certain support/resistance line we must connect at least 2/3 lows/highs. So I`m a little confused about plotting your resistance/support level, shouldn`t we have 2/3 highs/lows to form a level? Thanks.

  129. Taylor Kehinde says:

    This is great Chris,
    i love this is a great method of trading just seen the proper use of Stochastic Oscillator. thanks chris this is great.

  130. Charles Booth says:

    Does the direction of the line have any relevance once its in over sold or bought respectivaly?

  131. muhammad ashraf says:

    I learned more in a few months with LuckScout very good teaching
    Thank you a thousand times, GOD bless you Chris Pottorff

  132. Taylor Kehinde says:

    The best explanation i have ever seen. thanks for the light

  133. Danuta Tarnowski says:

    Dear Chris
    Diego is not the only person that can not get the E-Book.
    I have been trying many times without any success.
    I have follow all the instruction provided to me and I am still waiting.

    Any reason as why I have not been receiving any links since December last year.
    My first link this year, came this month.
    Thank you

    Thank you

  134. Jan Jula says:

    Thank you so much. ^___^

  135. Gav Ess says:

    This article seemed like great insight into Stochastics until I read this other article which seems like a complete contradiction.

    https://www.luckscout.com/a-simple-swing-trading-strategy-for- -traders/

    Please advise.

  136. Anneke Bartelts says:

    Dear Chris,

    Can I use this system with the lines I have been drawing on the candlesticks body and tails?
    I have noticed that the are also very strong.

  137. Anneke Bartelts says:

    The lines on the candlesticks body’s and tails.

  138. Hey Ling says:

    Hi Chris,

    Thank you for this very useful article as always. Sorry could I ask that you take some time to help me look at this?

    Usdcad weekly chart: I located a resistance level at 1.3245 and it seems like the 2 oct 2016 candlestick has broken it. The Stochastic however is only very slightly above 80 or on the dot at 80.

    Can we go long in this case?

    Thank you so very much. 🙂

  139. Lee Cheng says:

    Hi. Chris. Your explanation of the Stochastic oscillator is totally enlightening. I do have a question. My platform offers two versions of Stochastic indicator: slow and fast. Does it matter which one I use ?

  140. Lee Cheng says:

    Hi. Chris.

    Just wondering if Stochastic oscillator can be of any help in confirming trades using candlestick reversal pattern ?

    Thanks a bunch.

    • LuckScout says:

      Hi Lee,

      No. It causes you to lose if you use it to confirm the reversal patterns. The best time to use it is when the market is trending and stochastic is on the “over” area.

  141. fawaz bamakrait says:

    thanks chris ,well understood .

  142. Ben Aqiba says:

    Hi Chris,

    great article. “Trading is about buying high and selling higher and selling low and buying lower”-just great.
    I don’t have in my Stochastic Main and Signal mark for lines.
    I have 0 and 1.How can I know which line is the signal line ?

    Thank you

  143. Charles Booth says:

    This is one of my favorites! It’s very thorough and easy to understand. I use the system from time to time to time as a extra check off for some of my trades. Thanks for sharing so freely valuable information every post. You actions are changing life’s and there is nothing more important one can do in my opinion. It is so refreshing to be able to promote something that is first class and actually helps people. Before discovering this movement I had lost my way. Your vision and actions inspired me to take a look at myself on a deeper level and realize I had become self centered. And gave me an opportunity to do something for others in a positive way. Thanks again.. Charles

  144. Alix Charles says:

    This really is a great article, Chris. It absolutely opened my eyes to how the Stochastic should really be used. Too bad others don’t teach like you do! Many thanks.

  145. Reza Samimi says:

    I love this trading system as it is as simple as possible. the only thing is plotting correct S/R levels or lines.
    thank you so much Chris.

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