Trading Strategy using Stochastics and 15/30 MA Crossover


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Video Transcript:

Hello, traders. Welcome to the 8th Module of the Advanced Technical Analysis Course: Putting Everything Together. And in this lesson, we’re going to show you how to trade a simple system, using the stochastic oscillator and a 15 and 30 moving average crossover.

Now, this will be the first system developed in this Advanced Technical Analysis Course, and the idea here is to show you how to develop your own trading system using the indicators that you have learned how to use during this course. The simple system uses a 15 and 30 moving average crossover, and extreme stochastic oscillator levels as confirmation.

Now here are the rules of the system. This is a pretty mechanical system, so you don’t have to think much about the entries or the exits. We go long when the stochastic is oversold, and the 15 moving average crosses above the 30 moving average. We go short when the stochastic is overbought, and the 15 moving average crosses below the 30 moving average. We always trail our stocks to the next conflictive level following the 15 moving average. This means that in a long position, we will always trail our stocks to the next area of support, and in a short position we will always trail our stocks to the next area of resistance.

If price breaks the 15 moving average, we exit the trade. This means that in a long position, if price breaks with the 15 moving average to the downside, we exit the trade, and in a short position, if price breaks with the 15 moving average to the offside, we also exit the trade. There’s one thing you should know. This system can be used in any time frame. And this means that if you’d like to trade a 50-minute charge, and they trade currency fares or stocks, you can do it with this system. And if you like to hold your trades for a long period of time, or the four-hour charge or the daily charge, you can also use the system.

Stochastic and 15/30 MA Crossover

Okay, traders, we are back. And as you can see we have the Daily New Zealand Dollar/US Dollar chart in front of us. And because we are mostly day traders here, we’re going to go back to the 50-minute charge to use this moving average crossover system with the stochastic oscillator, okay? Now, here’s the first example of a trade. As you can see here, we are in an up move, and then boom right here. I’m sorry. Right here, we have a moving average crossover, so this means that right here we have our first short entry. And, as you can see here, we have a stochastic oscillator, or overbought levels above 80 when price hits this high.

So here we have the first entry and we are going to be trailing our stocks to the next area of resistance, which is this one, and we don’t get stocked out. Then price moves back down and we move it here, then we move it here, we don’t get stocked out. When we move it here, then we move it all the way down here, all the way down here. And when we move it here, we get stocked out. And, actually, I would have exited the trade right here when price breaks to the offside on the 50 minute, on the 15 period moving average. And, of course, if you are not quick enough, you always have your stops trailed for you to get out with your profits. And this trade will have yield a nice 24 pips on a nice day trade.

Now, well, if we go back we do have another moving average crossover right here. But to tell you the truth, we don’t have confirmation with the stochastic, so I would not have taken this trade, okay? For me, this is not a trade, and the system requires that we have confirmation of the stochastic oscillator, and the stochastic oscillator should be in actual oversold levels for us to be able to go long. Now, here we do have another stochastic crossover, and here we had oversold levels when we hit this low. So we hit this low, and we had oversold, and we had oversold levels, and when the 15-period moving average crosses above the 30-period moving average, we have a set-up to go long. And if we trail our stocks to the next level of support right here, right here, right here, right here, right here, we would have been stocked out at this level right here. We would have yield a nice 30 pip win for us.

And right here we have another example of a good set-up. The stochastic oscillator hits an overbought level at this height right here, and this is what we’re looking for. We are looking for an overbought level at a high, or an oversold level at a low, and then a moving average crossover. When we have the moving average crossover, we go short and we exit the trade right here when price crosses above the 15-period moving average, yielding another 28 pip win.

And basically, this is how you trade a simple moving average crossover with a stochastic oscillator system. You have to be very, very disciplined because sometimes you will get crossovers, or you will get false signals that you must not take, just like this one, because the rules are not there. Because you are trading a mechanical system, or a semi-mechanical system because the rules for an entry are very specific, and the rules for an exit are also very specific. But this is how you start to create your own system. And if you don’t like moving averages where you can use the parabolic SAR, for example, and the RSI with a 200-period moving average, and you can trade off levels and have more discretion on your trades. But if you’re…

Adam

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