There are only a few prerequisite you’ll need to learn this free method. The first is a computer with a usable working copy of Metarader 4 with it incoming data connected to a broker who allows trading demo. And the second is the ability to decipher simple candlestick patterns; Hanging man, doji, soldiers etc. You will not be trading with these patterns but you will need them to decide if the current patterns are possibly a catalyst to adverse price movement.
The New Stochastic Time Frame Sequencing Method.
I have been trading Live and Demo for several years and I finally figured out the best method of applying the stochastic to my active trades. The method involves two indicators… rather one indicator and a candle timer. The platform that I trade on and enjoy because of its versatility, diversability and adaptability is Metatrader 4. You can modify source code and create your own to supplement.
If you are a new trader, there is plenty around on the stochastic oscillator, Google: “Forex Stochastic oscillator” or “Forex Stochastic oscillator utensil”. Basically what you will end up with is an explanation of the math behind its functionality and its use. Unless you are writing a thesis on the oscillator, programming or reprogramming I’d say you only need to worry about the uses.
The accepted standard of usage with this indicator requires buying when the market is oversold; the oscillator reading is below 20, and selling when the market or currency pair you are trading analyzed reads overbought; the oscillator reading is above 80.
The Extreme Cross Currency Stochastic Monitor
extreme CC Stochastic Monitor.zip (10.2 KB)
The indicator that the method requires is called the “Extreme Cross Currency Stochastic Monitor”. It is a console based utensil as this is a visual hands on method of trading. You can get it at ForexUtensils.com but I will attach a copy of it here. What this indicator does is it takes the readings from nine differently set Stochastic oscillators on as many pairs as you decide to mandate, then it detects the true overbought oversold conditions measuring the convergence and divergence of the oscillators outputs changing ratios and averages. There are methods appropriating the usage of multiple Stochastic oscillators, however this method is by far the most accurate if these are the real conditions which you are trying to detect.
The Candle Timer Utensil
Knowing the exact time the next candle will open is imperative to this method. Any Candle Timer will work. I will be using another console utensil called Candle Percent Timer. What sets it apart is its ability to show the the candle time according to ticks for any time frame that you choose on one chart. You can watch the five minute chart and know which five minutes you are watching in correspondence of the fifteen, thirty or four hour charts. I also like it because it shows the size of the candle for whichever time frame you choose. Knowing the candle and its relation to the current candlestick pattern on the Four hour and higher charts will augment your trading of the thirty minute chart, which is the one I will use as an example to this strategy.
First things first:
[ol]
[li]Download the attached indicator
[/li][li]Grab a Candle Timer
[/li][li]Make sure they are both in the Metatrader 4 experts/indicators/ folder
[/li][li]If your timer is not an ex4 file then you have to compile it of restart the platform
[/li][li]Once you have the indicators both functioning properly open a chart on the EURUSD pair
[/li][/ol]
Drop the Stochastic monitor console onto the chart. Examine it quickly noticing that it has the time frames on the top and under them you’ll see either a “~” an “ob” or “os”. The “~” means there is nothing worth mentioning on the current pair. The “ob” means that the time frame indicator in the above crossbar is now currently in the true overbought phase of movement. Lastly, of course the “os” means the pair is in the true oversold condition for its above time frame.
Since this method is not very difficult it will not take long to show how to trade it and luckily there is not much room for error, according to the system. Money Management I will leave to you. There are plenty of forums on this site that will help you to find what is appropriate Money Management with the calculated risk ratio versus reward potential on the time frame you choose. I will say that I trade with about a 3% risk on every trade according to the stop-loss and leverage.
Check the readings now literally. What you need to take your first trade with this method is three time frame that are agreeable on either overbought and oversold with at least two of those time frames being the four hour or higher.
example: The 15 is “ob” the Four hour is “ob” and the Weekly is “ob”
You always need to make sure what you are looking at is not a false signal. False signals lead to false trades leads to empty bank account. These false signals seem to work at first and they make you think that you are in a winning trade but then after quickly reverse. Try to stick to the 2 higher time frames and at least one lower.
example of a false signal: The 1 is “ob” the 5 is “ob” and the Four hour is “ob”
As soon as you do get a positive signal be it overbought or oversold there is one more quick step to determine if the trade is acceptable according to the method.
Open up the four hour charts for the same pair. Look at the candle stick patterns analyzing them to determine if exists any resemblance of a pattern or start of a pattern indicating an adverse movement. If there is, then the correct thing to do at this time would be to wait until another opportunity is present. Watching your candle stick timer on the four hour. Usually as the next candle opens you can determine if the markets general sentiment is behind the patterns indicative juju. For the sake of continuing explaining the method I use, we will say that the candle stick pattern check is congruent, and no antithesis expletives exist.
Take the trade on your demo account. If the indicators conjecture is that of oversold make a market buy. If it is overbought, a market sell. Your stop-loss need to be 31 pip under or over your entry price. Always trade according to your money management system. One trade never has anymore or any less potential than another as long as it is entered into with the same method. Try to keep the enthusiasms out of the job.
Re-open your thirty minute chart following your trade. You will be tempted to move the stop-loss up to break-even to save any pips collected, but it is not recommended to do. Unless the trade has an accumulation of 30+. Doing so could damage the longer term efficacy. What you are attempting is a trade where the risk reward in pips is 1/3 so the take should be around 90+ pips. This will afford another 2+ trades with the same method, and through compounding you should hopefully enjoy great profits.
Don’t be greedy.
Good luck.
