Learn Stochastic Strategy

This learn lesson will talk about how to create a trade strategy that is based on the stochastic technical indicator. This stochastic strategy will be used by traders to trade trending markets. This gold strategy is simple to trade with & simple to follow. Using the stochastic oscillator indicators traders can use this indicator to come up with a strategy that will be used to identify trends.

Trend

There are different techniques used to figure out & identify market trends.

·An upward trend is when the market is moving in an upward general direction and the price keeps making higher highs & higher lows.

·A downwards trend is when the market is moving in a downward general direction and the price keeps making lower lows & lower highs.

This is the first thing to look for when determining the trend, a trader can then use another method to confirm the market trend. For example a trader may use a trend-line and if the trend-line direction is up the trend is then upwards but if the trend line direction is down then the market trend is downward.

A trader can also use the 200 day moving average to determine the trend. If the price is above the 200 day moving average then the market trend is considered as an upward bullish trend. If the price is below the 200 day moving average then the market trend is regarded as a downward bearish trend.

Stochastic Strategy

After determining the trend the trader will then use the stochastic indicator to ascertain where to open a buy or a sell gold trade. For this trading strategy a xauusd trader will use the over-bought and oversold levels to detect when to open trade positions. Oversold level is the 20 mark on the stochastic and the over-bought level is the 80 mark on the stochastic oscillator indicator.

Upwards Gold Trend - in an upward gold trend the trader will wait for stochastic technical indicator to pullback and move downwards up to the over-sold levels. This will mean that there is a short term market retracement and a gold trader will wait for the best opportunity to buy after this pull back. Once the stochastic oscillator reaches the over-sold level it will not stay there for long because the trend is upwards and this will only be a temporary price pull-back.

A trader will open a buy trade once the stochastic oscillator leaves the oversold level & starts moving upwards.

Down-wards XAUUSD Trend - in a downwards trend the trader will wait for stochastic technical indicator to retrace upward and move upward upto the over-bought levels. This will mean that there is a short term market retracement & a xauusd trader will wait for the best opportunity to sell after this upwards retracement. Once the stochastic oscillator gets to the over-bought level it won't stay there for long because the trend is downwards and this will only be a temporary price pull-back.

A trader will open a sell gold trade once the stochastic oscillator leaves the overbought level and starts moving downwards.

One can use this strategy to find the best place where to open a trade after a price pullback. This will increase the chances of the trader becoming more profitable because the trades will be opened at the best point - that is after a price pullback. This will increase the risk reward ratio of the trades as the chances of the trades retracing further after these points are minimized because the price is already oversold in an upwards trending market or over-bought in a downward trending market.

A trader should then set their stoploss orders a few pips below where they opened a buy trade or a few pips above where they opened a sell gold trade. The trader will then determine where to takeprofits based on a favorable risk-reward ratio, or they can set the take profit at a specified amount of pips based on the rules of their plan.

More Tutorials and Courses:

Trade Gold Trading

Learn Stochastic Strategy

Trend

Stochastic Strategy