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Using Stochastics in Your Trading

Using Stochastics in Your Trading

Richard Krivo, Trading Instructor

Student’s Question:I think a crossover that occurs within the 80-20 channel can be used to enter trade provided we have other evidence like candlesticks supporting such move. A crossover above 80 confirms a overbought situation and below 20 confirms a oversold situation a trade entry in these levels gives a good probability of success. Is that correct?Instructor’s Response:I would agree, but we need to take it one step further…Keep in mind that after the cross above 80 or below 20 occurs, we would want to see Stochastics break above 20 or below 80 before actually taking a position. Just by virtue of the crossover occurring does not mean a position should be opened. The indicator can stay above 80 or below 20 for quite some time under the right market conditions and continue to become even more overbought or oversold. If a trader takes a short position while Stochastics is still above 80 or a long position when the indicator is still below 20, they are setting themselves up for a potential loss.Take a look at the chart below for a visual…

Using_Stochastics_in_Your_Trading_body_25774d1236131176-post-day-chart-3-3-09.png, Using Stochastics in Your Trading

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.