Simple Scalping using the 9,4,3 Stochastic
In this article I will be sharing a very simple Forex trading system. This can be used on the 1 minute or 5 minute chart and if done right, can prove itself to be very profitable.
Future plans: This is my first “trader’s” strategy. My plans for this are to set out a trading strategy and to also accompany it with a Metatrader 4 Expert Advisor. We’ll start simple and build up a strategy from here.
Stop loss and take profit
The most challenging thing for a trader is when to let go and sell, be it a loss or a profit. When executing the order, set your stop loss to be about 10-20 pips and the Take Profit to be about the same. This way you have an even up/down with a minimal loss. The lower the spread the better. Under 2 pips is ideal. Most major currency pairs (USDJPY, EURJPY, USDCAD) have low spread.
The Stochastics
Especially for beginning traders, what to set each indicator to can be a confusing and daunting task. There’s a million settings and combinations that’ll make anyone’s head explode. The following are simply guidelines to push you to your own path.
- Stochastic 9,4,3. This stochastic is use for determine the buy and sell trading signal in short term time frame. M1 to M15.
- Stochastic 12,4,12. This stochastic indicator is use for identify the buy and sell trading signal in medium term time frame. M30 to 1H.
- Stochastic 24,4,24. This stochastic indicator is use for identify the buy and sell trading signal in long term time frame. 1H to the daily.
Trade rules
Now that we’ve established a simple setup for the Stochastic, we need to define clear rules of when to buy, or known as Short/Long.
Go Long: When all of stochastic oscillator lines are in oversold level (Under 20), and the signal line crosses over the main line in an upwards move.
Go Short: When all stochastic oscillator indicators are in overbought level (Over 80). Open a short position (sell order) and hope it hits the pips quick.
The following USDJPY chart can better illustrate this technique.
Good article, thinking of building an EA myself with these settings. One question though. Does it mean we go Long/Short only if ALL 3 of the stochastic conditions are met?