How to use the stochastic indicator like a pro trader

How to use the stochastic indicator like a pro trader

We all know that indicators are nothing but our helping tools. But if you do some research you will be surprised to see that many successful Aussie traders use indicators in their live trading system. As a currency trader, you have to keep your trading chart clean. If you trade with too many indicators chances are very high that you will mix things up and take wrong decision in the market. Today we will give you a clear idea how to use the stochastic indicator like a pro trader. Before that, you have to understand that indicators are basically two types. The leading indicators will give you early trading signals whereas the lagging indicators will give you late signals in the market. You can use both types of indicators depending on your trading strategy and mentality.

What are stochastic indicators?

Stochastic indicator is used to find the overbought and oversold conditions of the currency pairs. If the value of the stochastic indicators goes above 80, it means the price of the currency pair is most likely to face the bearish threat. Similarly, if the value of the stochastic indicator drops below the 20 mark you can assume that the price of a certain asset will go up. But trading the market based on the indicators reading is just like a suicide mission. It’s nothing but an active element which will help you to filter the best trades in the market.

Find the key support and resistance level

Before you use the stochastic indicators reading you have to find the key support and resistance level. In order to find the key levels of the market, you have to use the daily time frame. Daily time frame trading is extremely boring as you will have to wait for hours for a single trade setup. But always remember the proverb patience has its own reward. You can never become a successful trader unless you learn to trade this market with the great level of patience.

Use the price action confirmation signal

Once you have successfully found the key support and resistance level, it’s time for you to use the price action trading system. You might be wondering when we will use the stochastic indicators reading to trade the market. As we have said earlier indicators are nothing but our helping tools. We will use it in the last part of our market analysis. If you can spot potential reversal signals at the key support and resistance level, assess the risk-reward ratio of that trade. The trade must have 1:3 risk reward ratio or else ignore the trade setup. Make sure you are looking for potential trade setup in favor of the long-term market trend. Once you have completed the market analysis it’s time for you to use the indicators. Forex trading is nothing but finding the perfect balance between risk and reward.

Use of stochastic indicators

Let’s say you have spotted a long trade setup. Instead of placing the trades immediately in the market you have to wait for the stochastic reading to reach the 20 market. Once the value of stochastic indicators drops below the 20 market it’s time for you to execute the long order.

Trading the market by using the stochastic and price action signal is very profitable. But you have to remember the fact that losing trades are inevitable. So never try to win all trades or trade the market with big lot size. You have to consider proper risk management factors to save your trading capital. Making money in the online trading industry is very easy but when it comes to consistency everything becomes extremely difficult. You have to control your emotion and take every step with an extreme level of caution. As a retail trader, you have very little room to make mistake. And for every mistake that you will make, you will have to pay for it.

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