Here we will look at how to do this, with the stochastic indicator and show you a simple powerful method for big profits. Swing trading is easy to do, logical and easy to understand and can be very effective.
The stochastic indicator combined with valid support and resistance gives you a robust simple strategy you can learn quickly than can be highly effective in making big forex profits so here it is. An Introduction George Lane developed the stochastic indicator which was based on the premise that in an up-trend, prices tend to close near their highs and of course in a down-trend the reverse occurs, prices tend to close near their lows.
This simple logic is the basis of the stochastic indicator but despite its simplicity it's a powerful tool. The stochastic should our view be used in association with areas of support and resistance and be used to enter positions when price momentum wanes in an uptrend below resistance and strengthens in a down trend above resistance.
The Mathematics If you are technically minded, the stochastic calculation is outlined below. If you are not don't worry, as most major chart services plot the stochastic and you can simply see the set ups visually - here it is: The lines are plotted on a scale of 1 to A signal is then generated when the stochastic lines cross.
The Stochastic can help you enter trading signals in a number of ways and here we have outlined the 3 major ways you can use it in a swing trading strategy. Stochastic Divergences Divergences between the stochastic and the underlying price trend warn that a potential price change is on the way and are a great leading indicator for your trading signals.
For example, if prices are making a series of new highs and trending upwards and the stochastic moves lower or crosses to the downside then price momentum and velocity is weakening and the reverse occurs of course in a bear market. Why It Works The reason it works and we consider it the best forex technical indicator for swing trading is based upon human psychology.
A long term price trend does not just go in a straight line - there are peaks and troughs along the way. Forex traders will push prices to far too quickly and prices then return back to fair value. It is these moves within long term trends, that swing traders want to catch - so by combining the stochastic with simple support and resistance is very effective. If you are new to forex trading then swing trading with the stochastic gives you a simple method which works and the stochastic is the best forex technical indicator to use and while there are others, using the stochastic wisely, with support and resistance lines, can make big consistent profits.
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