You must learn how to use Stochastics in your forex trading. Many traders use it incorrectly. It is a very good indicator that if used properly can be highly profitable. Stochastics is based on two plot %K and %D. %K is the fast moving plot while %D is the slow moving plot. K is calculated using this formula; K=100*(C-L)(H-L). C, L and H are the Close, High and the Low of 14 days period. %K is the 3 day MA ( Moving Average) and %D is the 3 day MA ( Moving Average) of %K.

Fortunately, you don't have to go into all this maths unless you want to fiddle with it and see if you can make it work better. One common question is how many days to use in Stochastics. Stick with 14 days as it is the default. Longer period means lesser signals and lower whipsaw while shorter periods means more signals and more whipsaw.

Now when stochastics is above the 80 line, market is overbought and when it is below the 20 line, market is oversold. But buying and selling on overbought and oversold will simply won't work.

Buy only when the stochastics moves above the 80 line and %K crosses below %D. Similarly, sell only when the stochastics moves below the 20 line and %K crosses above %D.

This strategy involves trading the %D and %K crossovers. %D is the slower moving line while the %K is the faster moving line. The best signals come when these crossovers happen when the stochastics is above the 80 line or below the 20 line.

Left handed Crossover takes place as %K crosses %D when it is climbing whereas the Right Handed Crossover occurs when %K crosses %D hump from the right.

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