Here we will look at the best forex trading indicator for swing trading this is for oversold and overbought trading within a trend. Here we will see how to trade this, stochastic forex indicator and show you a simple powerful method for large profits.
Swing trading is easily done, logical and easy to understand and can be very effective. The stochastic indicator combined with valid support and resistance gives you a robust simple strategy you can learn than can be very effective in making big forex profits so here it is.
Introduction
George Lane developed the stochastic indicator, based on the premise that the up-trend, prices tend to close near their highs, and of course in a down-trend the reverse occurs, prices tend to close near their lows.
This simple logic is the basis of stochastic indicator but despite its simplicity it is a powerful tool.
The stochastic should our view be used in conjunction with areas of support and resistance and are used to enter positions when price momentum wanes in uptrend below resistance and strengthens in a down trend above resistance.
In mathematics
If you are technically minded, the stochastic calculation is shown below. If you do not worry, as most major chart services plot the stochastic and can simply watch the set ups visually - here it is:
The stochastic is plotted as two lines percent K, fast line and percent D, slow line.
PercentK line is more sensitive than percentD
The percentD line is moving at an average percentK.
The percentD line, then triggers the trading signals.
The lines are plotted on a scale of 1 to 100.
"Trigger" lines can be drawn on stochastic charts at 80 percent (overbought) and 20 percent (oversold) levels. A signal is then generated when the stochastic lines cross.
The Stochastic can help you get trading signals in many ways and here we have outlined the 3 main ways that you can use in swing trading strategy.
How Overbought Oversold
When 20 percent and 80 percent trigger lines are crossed look to do the following with respect to initiating your trading signal. Take a long position and buy when the stochastic moves below 20 percent, and then rises above this level. On the other hand short position and sell when the stochastic rises above 80 percent, and then returns below this level.
Stochastic Crossovers Against the Trend
This is a highly reliable signal
You can buy when the line percentK rises above percentD line and sell when the line drops below percentK percentD line. Reliable or high odds crossovers occur when the line percentK intersects after the peak of percentD line.
Stochastic differences
Differences between the stochastic and the underlying price trend warn that a potential price change is the way to a great leading indicator for your trading signals.
For example, if prices make a series of new highs and trending upward and stochastic moves lower or crosses the downside then price momentum and velocity weakening and appears to reverse course in a bear market.
Why it Works
The reason that it works and believe that the best forex technical indicator for swing trading is based on human psychology.
A long term price trend does not just go in a straight line - there are peaks and troughs along the way. Forex traders will push prices too quickly and prices then return back to fair value. It is these moves within long-term trends, that swing traders want to catch - so by combining the stochastic with simple support and resistance is very effective.
If you are new to forex trading then swing trading stochastic gives you a simple method that works best stochastic forex technical indicator to use and while there are others using the stochastic wisely, with support and resistance lines can be make big consistent profits.
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