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Tuesday, August 23, 2016

Trading Overbought and Oversold Bars with Stochastics

Defining a Trade Setup using Stochastics

Using the Stochastic Indicator we can define several simple and easy Trade Setups.

With the Ninjatrader Stochastics Indicator we can define Overbought and Oversold Bars when the K line is above or below these levels.

The D line is an average of the K line, so the closest is its period to 1, the closest this line will be with the K. With a period of 1, both lines overlap one each other.

We can use 2 different methods to trade with Stochastics ;

  • Using both K and D lines ; we watch for Crossover of these lines, and take an entry depending where the crossover happened ; if it was on the overbought, we have a sell. If it was on the oversold, then it is a buy signal.
  • Using only the K Line ; we wait for the K line being on the overbought/oversold area and trying to get out...
Example using Method 1 ( K vs D Crossover : TIS_STO_XO )

Example using Method 2 ( TIS_Reversal )

Watch this YouTube Video for more information