Placing Forex Trades With A Stochastic Oscillator
Author: Ricky Weber
The stochastic oscillator is in a category of technical indicators called momentum indicators, which measure the velocity of price changes instead of the actual trend or price levels themselves. Since this indicator measures price velocity and does not care about actual price levels, it works as a great predictive indicator that can indicate overbought or oversold market conditions which can warn a trader that the price is vulnerable to a short-term change in direction.
One of the most popular momentum indicators that is included in nearly every charting package is called the Relative Strength Index, which gauges price velocity on a scale of 0-100 with 50 as the center line, where market conditions below 20 indicate oversold and market conditions over 80 indicate overbought. This is very valuable information to a trader for two reasons: First, a change in the velocity of price movement will tend to occur before a change in price levels, so the indicator can yield signals that are predictive and not retrospective in nature. Second, it is the buying or selling pressure of bulls and bears that creates up and down movements in the price, but once a price move reaches its zenith and there is no more momentum or market pressure to keep the market moving, this is the signal for a market reversal and the momentum indicator will precede this reversal.
Looking at a stochastic oscillator can be more insightful in some ways than just the typical RSI momentum indicator because there is more information conveyed on the indicator itself. It uses a typical 0-100 scale with the same overbought and oversold parameters as the RSI, but on the stochastic oscillator there are two lines related to the velocity of price data instead of just one. There is a faster moving line on the indicator which is the actual stochastic level that measures momentum, and then there is the slower moving line which is a moving average of the original momentum levels that can act as your signal line just like a moving average on the price chart will do.
When the stochastic line crosses the moving average line from the bottom going up, this is the signal to buy; when the stochastic line crosses the moving average line from the top going down then this is the signal to sell. These signals are particularly valid when a buy signal is given in oversold territory and a sell signal is given in overbought territory, because this is your indication of a short-term reversal in price which will be given before the actual price movement, meaning that you can get in the market at the right time and make sure that your sell price is higher than your buy price.
Article Source: http://www.articlesbase.com/finance-articles/placing-forex-trades-with-a-stochastic-oscillator-1418999.html
About the Author
Read this original article at http://TheCurrencyMarkets.com/forex-stochastic-oscillator.htm If you are interested in forex you should check out the free forex trading ebook collection at http://TheCurrencyMarkets.com/forex-reports.htm
November 30, -0001
12:00 am #comment-1
The Tax law in Canada and the USA both want cap gains on earnings from forex trades.
Currently there is no IRS form that is sent from ther broker to you but is you do not report earnings it is against tax law…
Good luck
November 30, -0001
12:00 am #comment-2
interbank forex platform is not the best choice…
its good but no so good! it has some “bugs” as you can see!
better choose some different platform if you want to trade using demo account!
anyway you should not trade with demo account to long!
November 30, -0001
12:00 am #comment-3
I trade stocks, commodities and have traded forex. I have made and lost money at all three. Forex is a very quickly moving market and you must use stops when you trade. You need to plan your entrances and exits very carefully, but there are times your best laid plans will go against you, and sometimes, you can sail right through your stops and leave you reeling. Before you trade any market, paper trade, and get a feel for your risk tolerance. There are now ways to invest in currencies on the stock market, through Exchange Traded Funds. These move slower and have less risk. You can also check out http://www.everbank.com. They have CD’s tied to foreign currencies. You need to read and educate yourself thoroughly before you risk your money. Don’t forget, currencies are influenced by a lot of factors-government interventions, inflation, all kinds of unexpected things happen.
if you think you can make a living at this, you can, but it is hard. To do that, you have to be prepared to lose money sometimes. No trader has wins, only. But, only those who control risk can play another day, otherwise you can get wiped out fast. One reason is because these are highly leveraged markets- that works to your favor because you don’t put up much $ to control a contract, but you are on the hook for a great deal of money, and could be subject to a margin call if the market moves against you. That is serious stuff. Don’t make a move until you are thoroughly familiar with the market, how it moves, and how you will control your risks. Good luck, and happy trading.
November 30, -0001
12:00 am #comment-4
Try to visit this site to get more Forex tips and resources coming from a best traders, http://forexterritory.com/blog/forex-ripper/ .
November 30, -0001
12:00 am #comment-5
Hi there,
i wish i can tell you a holy grail of trading but unfortunately there is none.
How to win more in forex?
1) Proper money management is a must. You may win 5 trades but with an over risked position, one losing one may wipe your account
2) Hardwork. Read the news. Know of upcoming high risk event and news releases and stay out of them
3) Know the currency pair you are trading on well. How does it usually react during the US/London/Asian markets.
Do all this and you may finally make it to the 5% of folks who gained in forex.
Cheers and all the best.
I write about forex articles in my blog for newcomers.
August 20, 2006
6:20 pm #comment-6
Is capital gain tax on forex trades executed with a cdn dealer due in Canada?And with a foreign dealer?
I am interested in trading forex but don’t know if capital gain tax is due in Canada on such trades? And what if I use a US based broker? I saw that some brokers are based in Swiss and other places and accounts open with them are capital tax exempt. Does anyone know more about it? Thanks.
May 22, 2008
11:25 pm #comment-7
Who trades FOREX and can you tell me your experiences?
I am just learning about trading FOREX and would like to know from those who are both novices and pros at it, what to look out for, what to know and wish you knew from the beginning and if it is something a person can do well at?
March 11, 2009
2:36 pm #comment-8
Why do open ForEx trades close automatically when internet Disconnects or when they reach -$2000 in losses?
I am using Interbank FX trading platform and have been using a demo account to test out these errors I’ve been getting.
Stop loss is not active. During disconnects, open trades close for whatever value they are at. If left open for a few hours, loss trades auto-close for a loss. The market was still open for all these tests.
So, anyone have any ideas?
December 11, 2009
12:09 pm #comment-9
How to win more trades in Forex?
Hi I am an all time loser in forex. I have been losing money since a very long time 2003 but I still trade with the hope that one day I will win. Has anyone ever won in Forex? If yes, then please share your trading strategy.
March 10, 2010
9:39 am #comment-10
Is there a way to copy the Forex trades of the best traders?
And would you make money?