Is stochastic better than RSI. In this video I will go over the basics of stochastic and I will also share a trading strategy based on the stochastic indicator to trade forex, crypto, and stocks.
Topics covered :-
– What is stochastics
– How to plot stochastic
– How to use stochastic in trading
– Trading strategy for stochastic
Brief Overview :-
In this video, I will be sharing a swing trading strategy based on the stochastic indicator that can help you capture short term swings in the market. But, before we start, be sure to hit that like button and subscribe to our channel so that you don’t miss on any of our new videos.
First, let us understand, what is the stochastic indicator?
Stochastic indicator is a short term momentum indicator that is very similar to the RSI indicator.
The basic premise of the stochastic is that it compares the current close to the highest and the lowest closes during a particular time period.
So, if we chose a 10 period stochastic, it will show where the current candle is in the range of the last 10 candles.
So here is the stochastic indicator on the default settings of 14, 1, and 1.
On the indicator’s tab, we have 2 lines. The blue line here is the % K line and the orange line is the % D line.
The blue line is the actual stochastic line. It shows us the actual value of the stochastic.
The orange line is simply a 3 period moving average of the blue line.
Some traders like to use the crossovers of these lines to determine entry and exit points in their strategy. We will cover these crossovers later in this video.
Other than these 2 lines, we have also marked this zone in the middle of the indicator from the 80 level to 20 level.
Just like the RSI, the stochastic indicator is also used to identify overbought and oversold zone.
When the stochastic goes above the 80 level, it is regarded as an overbought area, and we expect the price to make a short term down move.
Similarly, when the stochastic goes below the 20 level, it is regarded as an oversold territory, and we expect a short term upmove.
So, a great strategy would be to sell when the stochastic goes overbought, and buy when it turns oversold.
No, while that strategy may sound good in theory, but, in real life, the price does not obey the overbought oversold conditions at all times.