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GETTING STARTED.
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TOOLS AND STRATEGIES.
Develop your trading strategy and learn to use trading tools for market analysis.
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Learn to apply risk management tools to preserve your capital.
BASICS OF TRADING.
Learn the skills necessary to open, modify and close trades, and the basic features of our trading platform.
TECHNICAL AND FUNDAMENTAL ANALYSIS.
A trading strategy can offer benefits such as consistency of positive outcomes, and error minimization. An optimal trading strategy reflects the trader’s objective and personal approach.
Fundamental traders watch interest rates, employment reports, and other economic indicators trying to forecast market trends.
Technical analysts track historical prices, and traded volumes in an attempt to identify market trends. They rely on graphs and charts to plot this information and identify repeating patterns as a means to signal future buy and sell opportunities.
PROTECT YOUR CAPITAL INVESTMENT.
Leveraged trading involves high risk since losses can exceed the original investment. A capital management plan is vital to the success and survival of traders with all levels of experience.
Learn risk management concepts to preserve your capital and minimize your risk exposure. Seek to understand how leveraged trading can generate larger profits or larger losses and how multiple open trades can increase your risk of an automatic margin closeout.
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Stochastics Indicator Explained – What are Stochastics?
The “Stochastics” indicator is a popular member of the “Oscillator” family of technical indicators. George Lane created the Stochastics oscillator when he observed that, as markets reach a peak, the closing prices tend to approach the daily highs, and vice-versa. The Stochastics indicator is said to be “leading” since it generates signals before they appear in pricing behavior. Traders use the indicator to determine overbought and oversold conditions and the beginnings and endings of cycles in the forex market.
The Stochastics indicator is classified as an “oscillator” since the values fluctuate between zero and “100”. The indicator chart typically has lines drawn at both the “20” and “80” values as warning signals. Values exceeding “80” are interpreted as a strong overbought condition, or “selling” signal, and if the curve dips below “20”, a strong oversold condition, or “buying” signal, is generated.
Stochastics Formula.
The Stochastics indicator is common on Metatrader4 trading software, and the calculation formula sequence involves these straightforward steps:
Stochastics consist of two lines formed by “%K” and “%D”; Choose a period “N” for “%K”, “X” for %D (Standard settings = 9,3); %K = 100 * (CCL – LN)/(HN – LN) where CCL = Current Closing Price, LN = lowest low of past “N” periods, HN = highest high of past “N” periods; %D = 100 * (HX /LX) where HX = X-period sum of (CCL – LN), LX = X-period sum of (HN – LN).
Software programs perform the necessary computational work and produce a Stochastics indicator as displayed by the two lines in the bottom portion of the following chart:
The Stochastics indicator is composed of two fluctuating curves – the “Green” %K line, and the “Red” %D signal line. Forex traders prefer a slower version of this indicator because they believe the signals are more accurate. For Slow Stochastics, %K becomes the old %D line, and the new %D is derived from the new %K. The chart above is the slower version, a setting selection on the Metatrader platform. The Stochastics oscillator is viewed as a “leading” indicator, in that its signals foretell that a change in trend is imminent, especially when lines cross into extreme regions. The weakness in the indicator is that it is difficult to discern how long in advance the signal truly is.
How to Read a Stochastics Chart.
The Slow Stochastics oscillator with settings of “9, 3, 3” is presented on the bottom portion of the above “15 Minute” chart for the “AUD/USD” currency pair. In the example above, the “Green” line is the Stochastics “%K” value, while the “Red” line represents the “%D” signal line that acts like a moving average. Stochastics values below 20 and over 80 are worthy of attention.
The Stochastics Rollercoaster.
The key points of reference are highpoints, lowpoints, divergences, and occasionally crossovers. The slow “Stochastics Rollercoaster” tends to be more sensitive and is favored by forex traders. The Stochastics oscillator attempts to convey pricing momentum direction changes. Typical “oversold” and “overbought” conditions are noted on the chart, and line crossings confirm these trading signals. Divergences are also important as seen in the noted “overbought” condition. Prices are reaching new highs, but the Stochastics are already receding from previous highs, a sign to sell or short.
As with any technical indicator, a Stochastics chart will never be 100% correct. False signals can occur, but the positive signals are consistent enough to give a forex trader an “edge”. Skill in interpreting and understanding Stochastics signals must be developed over time, and complementing the Stochastics tool with another indicator is always recommended for further confirmation of potential trend changes.
In the next article on the Stochastics indicator, we will put all of this information together to illustrate a simple trading system using this Stochastics oscillator.
Risk Statement: Trading Foreign Exchange on margin carries a high level of risk and may not be suitable for all investors. The possibility exists that you could lose more than your initial deposit. The high degree of leverage can work against you as well as for you.

Stochastic.
Another popular indicator that forex traders use, along with RSI and Parabolic SAR, is the Stochastic Indicator.
The Stochastic was developed by a guy called George Lane, who was interested in trying to create an indicator that warned you when a price was reaching a point near its previous highs when going up, and near its previous lows when going down. We all know that lines of support and resistance tend to form in markets. The stochastic tries to map that in a simple graph.
The Stochastic is all about momentum: it has 2 lines: a fast one : %K, and a slow one: %D. The lines oscillate between 0 and 100.s.
And much like the RSI indicator, there are trigger lines on a Stochastic chart. Think 80/20 rule here - the lines are drawn in at the 80 and 20 levels (the Stochastic is normally a red flag on 70/30). If the chart crosses over these lines, it indicates that you are in “overbought” or “oversold” territory. Of course, this is just an “indicator”, not a gauge that is correct 100% of the time. Use it as a guide, not as a given and make sure you look at other factors and other forex indicators to give you a broader view.
There are various methods of using the Stochastic Chart as follows:
Stochastic lines intersecting — suggests a change in trend. 80+ levels: high zone. Suggests pair is overbought, Permanently in the +80 high zone - strong bullish trend. Stochastic heading below 80 level on a downward path — trend reversal possibility to a down trend. 20- levels: low zone zone. Suggests pair is oversold, Permanently in the -20 low zone - strong bearish trend. Stochastic heading above 20 level on a upward path — trend reversal possibility to a uptrend.
Let’s look at these more closely:
Stochastic %K (fast) and %D (fast) will often cross over, a bit like moving averages at different periods.
%K line intersects %D line from top to bottom, this is a Sell Signal. %K line fintersects %D line going up, this is a Buy Signal.
If you happen to see an intersection of the Stochastics in the High or Low Zone (>80 or <20), this is considered to be an even stronger signal.
As with all indicators, you can adjust the sensitivity of the %K and %D lines. We’d recommend just sticking with the default to begin with, but basically you reduce the Stochastic parameters to make it more sensitive. You’ll see more crossovers, but be careful - they’ll be more noise in their and more chance of a false signal. If the markets are moving fast, you can get away with a more sensitive set up. But it can be jittery.
2. The Stochie High/Low Zones - indentifying oversold/overbought pairs.
Just to recap, anything over 80% is considered overbought, and anything under 20% is considered oversold. But, be careful. If the trend is strong, you might see the lines camped up in these areas for long periods. As with all indicators, don’t use the Stochastic in isolation. Look at the Bollinger Bands, figure out the strength of the trade and perhaps more importantly, make sure you are away of the underlying market fundamentals and of any big news items coming up. this should just be one more tool in your box.
If your Stochastic line is in the High Zone (80+) for some time, and then drops out of it, then you might think of going short. Or, if you are a waiting bull, you’ll we watching the Stochastic lines and waiting for them to pop up out of the Low Zone (<20) .
Another concept to look out for is Stochastic Divergence. In this scenario, you are looking out for subtle difference between the actual price of the currency pair and the Stochastic.
Say, for example, that EURUSD is posting new lows, and the Stochastic is marking higher lows - you have a mismatch or divergence. This points to a possible reversal, and the price may flip back to the upside.
Full versus Fast versus Slow stochastic.
Try Trading With Stochastics at the Following Forex Brokers.

Forex stochastic indicator explained

Trading with Stochastic indicator involves the following signals:
Stochastic lines cross — indicates trend change.
Stochastic readings above 80 level — currency pair is overbought,
Stochastic staying above 80 level — uptrend is running strong.
Stochastic exiting 80 level downwards — expect a correction down or beginning of a downtrend.
Same for readings below 20 level — currency pair is oversold,
staying below 20 — doentrend is running strong,
exiting upwards above 20 — expect an upward correction or a beginning of an uptrend.
The idea behind Stochastic indicator.
The main idea behind Stochastic indicator according to its developer, George Lane, lies in the fact that rising price tends to close near its previous highs, and falling price tends to close near its previous lows.
How to interpret Stochastic indicator.
Stochastic is a momentum oscillator, which consists of two lines: %K - fast line, and %D - slow line. Stochastic is plotted on the scale between 1 and 100.
There are also so called "trigger levels" that are added to the Stochastic chart at 20 and 80 levels. Those lines suggest when the market is oversold or overbought once Stochastic lines pass over them.
How to trade with Stochastic indicator.
Let’s look at three methods of trading with Stochastic indicator.
Method 1. Trading Stochastic lines crossover.
This is the simplest and common method of reading signals from Stochastic lines as they cross each other. Stochastic %K and %D line work similar to moving averages and:
when %K line from above crosses %D line downwards traders open Sell orders.
when %K line from below crosses %D line upwards traders open Buy orders.
Stochastic lines crossovers that happen above 80% level and below 20% level are treated as strongest signals, compare to crossovers outside those levels.
Traders may choose sensitivity of their Stochastics. The smaller the Stochastic parameters, the faster it will react to market changes, the more crossovers will be shown.
Sensitive Stochastic (for example 5, 3, 3) is useful for observing rapidly changing market trends. But because it is too choppy it should be traded in combination with other indicators to filter out Stochastic signals.
Method 2. Trading Stochastic oversold/overbought zones.
Stochastic by default has 80% level, above which market is treated as overbought, and 20% level, below which market is considered oversold.
It is important to remember that while in sideways moving market a single Stochastic lines crossover that occur above 80% or below 20% will most of the time result in a fast predictable trend change, in trending market could mean just nothing. When price is trending well, Stochastic lines may easily remain in overbought/oversold zone for a long period of time while crossing there multiple times.
That’s why a method of trading overbought/oversold zones stands up. The rules here are to wait until Stochastic lines after being in overbought/oversold zone come out from it. E. g. When stochastic was trading for some time in overbought zone – above 80% level, traders wait for the lines to slide down and eventually cross 80% level downwards before considering to take Short positions. Opposite for Long positions: wait till Stochastic lines come into the oversold zone (below 20% level); wait further until Stochastic lines eventually cross 20% level upwards; initiate a buy order once Stochastic lines are firmly set, e. g. a trading bar is closed and Stochastic lines cross over 20% mark is fixed.
Method 3. Trading Stochastic divergence.
Traders are looking for a divergence between Stochastic and the price itself. At times when the price is making new lows while Stochastic produces higher lows creates dissonance in the picture. It is called divergence. Divergence between price and Stochastic readings suggest a forming weakness of a main trend and therefore its possible correction.
Full versus Fast versus Slow stochastic.
Full Stochastic inidcator has 3 parameters, like: Full Stoch (14, 3, 3), where the first and the last parameters are identical to those found in Fast and Slow Stochastic:
the first parameter is used to calculate %K line, while the last parameter represents the number of periods to define %D - signaling line.
The difference between Full and other Stochastics lies in the second parameter, which is made to add smoothing qualities for %K line. Applying this smoothing factor allows Full Stochastic be a bit more flexible for chart analysis.
Forex trading strategy using Stochastic indicator.
Stochastic indicators formulas.
Full Stochastic Formula.
Fast Stochastic Formula.
Slow Stochastic Formula.
JATIN.
very simple but very nicely explained.
Im impressed. Thanks Sanjoy.
thank you , it is very clear explanation , I hope you explain RSI indicator ( Relative Strength indicator ) with the same clear charts .
FxIndicators.
Thank you for your feedback, guys!
You're also right, I should do some work RSI indicator too.
Man that was well explained in such few lines, I looked the explanation somewhere else and so far yours is short and well presented.
Thanks a lot. You are a teacher that teaches what matters most to your students. Thanks again. Henry C.
being a novice trader i was a liitle worried that i would'nt be able to get my head around these charts. After reading through this explanation all is clear. Thanks for making it so easy to understand. Great tutorial!
Great explanation, excellent job, congratulation and thanks.
Yes your website is verry clear to understand indicators, when ill trade some winning trade, i think ill make you a donation, hehe.
Gana Lazhi Doko.
Yeah thanks, the explanation is shot but covers all the silient parts. wish you 'll do the same for rsi and some others.
Gana Lazhi Doko.
trader.
simple explains and covers much information clearly.
FxIndicators.
Thank you! I'm really glad you like it!
Thanks, I really appreciated the tutorial because it is easy to understand as you stated the data with clear explanation and formulas. Awesome! Seems U got much savvy in this aspect. TIPTOP!
Couldn't found what to say cuz of excellence, and the method of teaching. never seen before, TIPTOP!
Good job well done buddy'
I have heard that the experienced players are using double or triple Stochastic inidcators with different parameters and they are enough for them if they have learned to use them correctly. If so, how do they use? Please reply.
(Demo account stage)
FxIndicators.
when using double and triple Stochastics, the main idea is to let the longer period Stochastic to show a trend, while the smaller period Stochastic will give entry/exit signals. Forex traders would pick only those signals, that go with the direction of a trend.
As an example, Forex traders can use 34, 5, 5 and 5, 3, 3 Stochastics together.
Great info on the Stocastic Indicator -- thanks!
I'll check out your website.
avidiamonds39.
I am trading in comex gold.
I have three questions.
1. For trading in gold on daily basis which time horizon graph should one give most impotance for maximum profit.
2.Which are the best four indicators which when used give best results in Comex Gold trading.
3.Which are the best available live software trading based sites in Gold.
FxIndicators.
Try focusing on 1 hour and daily charts.
I'd believe that for your purposes you can use the same set of indicators, among which I would try MACD, Stochastic, then possibly also Parabolic SAR and some Moving averages. MT4.
Custom indicators would also be worth your attention.
Unfortunately, I can't help with the software question.
Frantisek Hulvat.
many thanks for Your great help for us.
I have any question - know You how indicators are using on this video above PLEAS??
This strategy is very attractive, but any MA - which I try - not crossover 80/20%.
FxIndicators.
I'm not sure if I understood your question. Please feel free to ask again.
In the video it night be 5, 3, 3 Stochastic - the default settings for Stochastic in MT4 platform. The oversold/overbought zones are set to 20/80 by default, but some traders may also use 30/70. I believe it's 20/80 in the video above.
I am not sure which stochastic line is %K and %D?
Can I say that the smoother line is %D? But sometimes both lines are so similar.
During the setting of Stochastic Slow, can I assume color 1 is always = %K, while color 2 is always = %D?
How to display/set the horizontal line of 20 & 80 (can view on the screen).