Combined Stochastic Oscillator/MA Trading Strategy

Combined Stochastic Oscillator/MA Forex trading strategy — is a relatively safe trading system that is based on the standard Stochastic Oscillator indicator in combination with the standard Exponential Moving Averages. You can use the moving averages as the general long-term trend indicator, while the stochastic will show you the short-term overbought/oversold states, where you can enter a successful pull-back trade.

Features

  • Rather reliable.
  • Trading with the trend.
  • It is not very easy to follow.
  • No definite target/exit levels.

Strategy Set-Up

  1. Any currency pair should work. Use D1 timeframe for the long-term trend detection with the Exponential Moving Averages and H1 timeframe for the short-term signal receiving with the Stochastic Oscillator.
  2. Add 3 Exponential Moving Averages to the D1 chart, set periods to 50, 100 and 200.
  3. Add a Stochastic Oscillator indicator to the H1 chart, set its %K period to 14, %D period to 3 and slowing to 3, use Close/Close price field, set overbought level to 90% and oversold level to 10%.

Entry Conditions

Enter Long position when the long-term trend is bullish (the D1 chart shows price above EMA50, EMA50 above EMA100 and EMA100 above EMA200) and the stochastic crosses the oversold level from below on H1 chart.

Enter Short position when the short-term trend is bearish (the D1 chart shows price below EMA50, EMA50 below EMA100 and EMA100 below EMA200) and the stochastic crosses the overbought level from above on H1 chart.

Exit Conditions

There are no definite SL/TP levels, but the recommended risk/reward ratio is 1/2.

A rather tight trailing stop should be maintained.

Examples

Bearish trend

Combined Stochastic Oscillator/MA Strategy Example Chart of Bearish EUR/AUD Signal from Stochastic
Combined Stochastic Oscillator/MA Strategy Example Chart of Bearish EUR/AUD Signal from MA

Bullish trend

Combined Stochastic Oscillator/MA Strategy Example Chart of Bullish AUD/CHF Signal from Stochastic
Combined Stochastic Oscillator/MA Strategy Example Chart of Bullish AUD/CHF Signal from MA

On the example charts you can see the December 14, 2009, signals generated both for the bearish EUR/AUD and for the bullish AUD/CHF charts. As you see, the signal line for stochastic oscillator is the actual stochastic, not its MA. The exponential moving averages should form an almost perfect trend for the more accurate signals. In the Short position example both positions would hit a rather optimistic take-profit. In the Long position example the second trade would end with almost no loss if a tight trailing stop was used.

Warning!

Use this strategy at your own risk. EarnForex.com can't be responsible for any losses associated with using any strategy presented on the site. It's not recommended to use this strategy on the real account without testing it on demo first.

Discussion:

Do you have any suggestions or questions regarding this strategy? You can always discuss Combined Stochastic Oscillator/MA Strategy with the fellow Forex traders on the Trading Systems and Strategies forum.