How to Choose a Strike Price with Stochastics

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Video Transcription

Welcome to the fourth lesson of Day Trading One Touch Options Course. In this lesson, we will teach you how to use the stochastic oscillator to get confirmation that we have, in fact achieved the fully corrective zone and that we can start calculating the target so we can get the range to trade the one touch options.

So, let’s get back to the MT4 platform and continue, to analyze the same scenario and the Euro/US dollar.

Okay, so this is the same Euro/U.S dollar scenario that we were analyzing in the past three lessons. And, as you know, everything in trading is about confirmation and confirmation and confirmation.

Now that we have already gone through how to use levels to know if we are in a fully corrective mode or just continuing with the upper movement, we will incorporate the stochastic oscillator to this strategy.

Why are we incorporating the stochastic oscillator to this strategy? This is simple. Let me just change the color of the yellow so that we can better visualize them. There you go.

So, the reason we are using the stochastic oscillator on this strategy is because we need to know that we have fully corrected to a zone where the market is in fact in this case, oversold. Okay? And that when we have hit the expansion, we have in fact; hit an area where the market is overbought in this scenario.

Sometimes we might think we are in a corrective mode when, in fact, as you can see here clearly on the stochastic oscillator, we are actually just correcting from overbought levels, which means that we cannot in a fully corrective mode until we downsize.

To be in a fully corrective mode to the downside, our levels have to be around the 20 level on the stochastic. The moving average is how to close over, below, or just touch the 20 level on the stochastic. This gives us a clear signal of that, that this was a clear correction of the main move but now that the market is oversold, we are due for a continuation of the main move up.

So, this is basically how we’re going to use the stochastic oscillator on this strategy. And what you should do is go through different set ups, look for different trends, find corrective modes and find corrective zones and do what we did. Try to use the stochastic, try to use the Fibonacci levels or to only go to the start of the move and go candle by candle to see if the actual setup would have worked.

I know that you would not have the actual one touch strike price, but by mastering how to recognize these spots, the one touch options trading comes very easily after.

Adam

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Adam is an experienced financial trader who writes about Forex trading, binary options, technical analysis and more.

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