Often Stochastic are supposed to be lagging. But, what if we can find a way to get the leading signals using indicators?
Well, the answer is divergence using stochastic oscillator.
If price is making higher highs, the oscillator should also be making higher highs. If price is making lower lows, the oscillator should also be making lower lows.
If they are NOT, that means price and the oscillator are diverging from each other. And that’s why it’s called “divergence.”
There are 2 types.
1. Regular
2. Hidden
Regular Divergence
1.1. Bullish Divergence
If price is making lower lows (LL), but the oscillator is making higher lows (HL), this is considered to be regular bullish divergence.
Even, if price makes Higher lows and the stochastic also higher lows then also you can buy. [This is not divergence and this pattern will appear more often than regular bullish divergence. Let's call this convergence.]
Start going through the charts.
I use the default setting for stochastics oscillators i.e. 14. I have traded this on 5 min TF, 30 min TF and daily TF.
I am starting this thread to see if we can improve the strategy.
Note : The oscillator can remain in oversold or overbought as long as it want. We shouldn't buy and short when the stochastic goes in one of the region. But, we can book some profit if we are already in the trade.
Well, the answer is divergence using stochastic oscillator.
If price is making higher highs, the oscillator should also be making higher highs. If price is making lower lows, the oscillator should also be making lower lows.
If they are NOT, that means price and the oscillator are diverging from each other. And that’s why it’s called “divergence.”
There are 2 types.
1. Regular
2. Hidden
Regular Divergence
1.1. Bullish Divergence
If price is making lower lows (LL), but the oscillator is making higher lows (HL), this is considered to be regular bullish divergence.
Even, if price makes Higher lows and the stochastic also higher lows then also you can buy. [This is not divergence and this pattern will appear more often than regular bullish divergence. Let's call this convergence.]
Start going through the charts.
I use the default setting for stochastics oscillators i.e. 14. I have traded this on 5 min TF, 30 min TF and daily TF.
I am starting this thread to see if we can improve the strategy.
Note : The oscillator can remain in oversold or overbought as long as it want. We shouldn't buy and short when the stochastic goes in one of the region. But, we can book some profit if we are already in the trade.