Stochastic Oscillator Strategy

An advanced approach to using the Stochastic Oscillator

Many people think that using the Stochastic Oscillator is as simple as putting it onto a chart and waiting for it to go above 80 to sell and below 20 to buy. But that’s as far from the truth as it can be. The stochastic oscillator can be one of the most powerful methods to improve your odds in calling (especially) reversals, but only when used correctly.

In this article, I will be sharing with you a Stochastic Oscillator Trading Strategy that I have learnt from my time in an institutional research house. I hope you find it super useful in helping you improve your trading.

How do you know of this Stochastic Oscillator Strategy?

And why should we trust you?

So my team runs Everest Fortune Group – an award-winning research house (The Technical Analyst 2019, 2020 & 2021 for Best FX Research & Best Equity Research to be specific) – and we have advised the trading desks of the largest banks, hedge funds and asset management companies and I can assure you that there’s a different way to look at Stochastic that can really improve your profitability.

Now, this can work really well by itself but my personal recommendation when it comes to trading – try to find as many different studies to agree on a certain outcome. What I mean is – if you have 3 oscillators (eg. RSI, Stochastic, MACD) that all tell you an instrument is overbought, it most likely won’t work as they are all oscillators. Instead, look for different studies that complement your trading. I particularly recommend combining this with:

  • Support and Resistance
  • Fibonacci Retracements
  • Fibonacci Extensions
  • True RSI
  • Price Action

And of course, ensuring everything is properly managed with good MT4 Trade Management.

What makes this Stochastic Oscillator Strategy better than the rest?

You know, the 70/30 and 80/20 ones.

Well, I trade for a living. I learnt my technical analysis from the best and my team currently provides technical analysis to some of the largest brokers including Tickmill, Axi, XM, FXCM, IC Markets and VantageFX. There are many ‘educators’ out there who don’t walk the talk. Here’s a recent video created by DollarsandSense in collaboration with IG showing the day in my life trading.

Anyway, I just wanted everyone to know that you should not trust people just because they tell you to or they have 1,000+ posts to their name in some random forex forum or have a rented Lamborghini in their instagram feed. Do your due diligence, this is your money on the line! Anyway, enough about me and let’s dive into how this strategy works.

How does this Stochastic trading strategy work?

What's the secret sauce?

One of the most important things you need to know is that 20/80 or 30/70 are not the correct levels. They are just recommended levels to look at. Every market has a True Stochastic level which is the one that the market obeys. For example, take a look at this:

Stochastic Oscillator Strategy - Price reacting multiple times off a key resistance area.
Price reacting multiple times off the 93% ressitance.

As you can see in the image above, price tends to react off the 93.52% resistance level each time price reaches there. That is more important than the 80% resistance that most strategies tell you about.

Personally, I often look out for at least 4 big reversals out of the most recent 5 swing highs/lows. This is a picture of how I got my MT4 True Stochastic Indicator identifying a true resistance level:

MT4 Stochastic Indicator - finding the hidden resistance level.
The MT4 True Stochastic Indicator identifies the hidden resistance level (at 95-100%)

Why 4 out of 5? Why not 8 out of 10 ties?

Yes, this is possible to be adjusted in the TFA True Stochastic Indicator settings. We are able to adjust the confidence level (eg. 80% bounce success) and minimum counts required (eg. 10 bounces as the sample size instead of 5).

However, I personally find that 8 out of 10 times might be a bit too hard to attain. You’ll find less setups but you’ll also find better setups when they do appear. My sweet spot currently is 4 out of 5 times.

How do i get this indicator?

Free version scans for Stochastic 21

You can get this indicator by heading over to this page:

The MT4 True Stochastic Indicator

An advanced stochastic indicator designed to identify the hidden levels of support and resistance where price has a high probability of reacting off.

Find Out More