(+) Day-Trade Strategies

THE STOCHASTIC TRADING STRATEGY

Day-trading the Forex majors using the Stochastic Oscillator and Fibonacci retracement.

 TRADING STRATEGY

■ Style: Day-Trade Strategy

■ Name: The Stochastic Day-Trading Strategy

💱 FINANCIAL ASSETS

■ Forex Majors (Preferably EURUSD and GBPUSD)

 TIMEFRAME

■ M5 time frame (5-Minutes)

■ 2-4 daily trades

 INDICATORS & SETUP

This strategy combines the Stochastic with the Fibonacci Retracement

■ Stochastic Oscillator

At a Glance: The Stochastic Oscillator

The Stochastic Oscillator measures a currency pair's closing price relative to its price range over a specified period—typically 14 days. It generates two lines, %K and %D, which oscillate between 0 and 100. This indicator helps identify overbought conditions (above 80) and oversold conditions (below 20), signals momentum shifts through line crossovers, and highlights potential reversals by spotting divergences between price action and the oscillator.

Settings:

• 5,3,3 instead of the standard setting (14,3,3)

■ Fibonacci Retracement

At a Glance: The Fibonacci Retracement

Fibonacci Retracement uses horizontal lines based on key Fibonacci ratios (23.6%, 38.2%, 50%, 61.8%, and 78.6%) drawn between a swing high and swing low. These levels help identify potential reversal points where price corrections might pause or reverse before the original trend continues.

Settings:

• Standard settings (.618, .500, .382 and 0.236)

 TRADING SIGNALS

This is how you can implement the Stochastic Strategy:

■ First, apply the Fibonacci levels, then look for signals from the Stochastic.

1. Identify the narrowest key support and resistance levels to apply the Fibonacci retracement.

2. Wait for signals from the Stochastic Oscillator.

■ (↑) Long Trades

• Each time EURUSD reaches an important Fibonacci support level and the Stochastic is at 20 and rising, you enter a long (bullish) trade.

■ (↓) Short Trades

• Each time EURUSD reaches an important Fibonacci resistance level and the Stochastic is at 80 and falling, you enter a short (bearish) trade.

 TRADING ORDERS

■ Take Profit: 40-50 pips

■ Stop-Loss: 15-20 pips

■ Profit/Loss Ratio: 2.5

CHART: The Stochastic Strategy (EURUSD)

■ The Stochastic Day-Trading Strategy

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