The software the traders use at the online trading platforms is more user-friendly than it was years ago. It is properly one of the reasons that the interest in trading Forex online has been increasing. The traders most preferred currency pairs are the EURUSD, USDJYP and GPBUSD.
My focus in this article is how to use the Bolling Bands and Stochastic Oscillator as a trading strategy. The Bolling Bands indicator is first explained and then the Stochastic Oscillator indicator. Last is explained how the two indicators work as a buying and a selling signal.
The Bolling Bands consist of three lines in a currency graph. The first line is the moving average line. The second is the upper standard deviation and the third is the lower standard deviation. The Bolling Bands are consisting of 95 percent of the closing prices. The preferred moving average is the 21-bar.
The selling and buying signals are when the currency prices are crossing the upper standard deviation and lower standard deviation.
The Stochastic Oscillator also called the Stochastic is a momentum indicator. A momentum indicator is an indicator that calculates the value of the price shifts during a definite period of time.
The Stochastic was made by George Lane in the 1950s. The theory is that the prices are moving back and forth like a wave. The waves move between an over-bought and an oversold level. The range is 100 percent and the over-bought level is the 80 percent level and the oversold level is the 20 percent level. Are the waves above the 50 percent level the market is considered as being bullish and when the prices are below the 50 percent level the market is considered to be bearish. Bullish is when the market is about to rise. Bearish is when the market is about to fall.
The indicator consists of two lines. The Stochastic line represented as %K. %K is calculated as current close minus lowest low. The result is divided with highest high minus lowest low and multiplied by 100. The second line is the signal line represented as %D. %D is a simple moving average of %K.
The Stochastic is developed as a slow indicator and a rapid indicator. The difference is that the rapid indicator is steeper than the slow one.
How to trade with the trading strategy? When traders have chosen to trade with this strategy they are looking for specific indications in a buying situation.
The indicators are:
1. The price line is outside the lower standard deviation.
2. The candle sticks are red and the traders are looking for the first green candle stick.
3. The market is in the over-sold zone.
4. The buy situation is when the candle sticks turn green.
In a selling situation the indicators are
1. The price line is outside the upper standard deviation.
2. The candle sticks are green and the traders are looking for the first red candle stick.
3. The market is in the over-bought zone.
4. The sell situation is when the candle sticks turn red.
In this article is a trading strategy shown that is based on the Bolling Bands and the stochastic indicators. The strategy is easy to use and could be used by day traders that want to trade short trades like 10 or 30 minute trades.