The Stochastic_Cross_Alert_SigOverlayM_cw Indicator For MT4 plots buy and sell signals on a price chart. The indicator signals are based on overbought and oversold conditions on the Stochastic Oscillator. The Stochastic Cross Alert should ideally be used in conjunction with a trend-following indicator to trade only in the direction of the major market trend.

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## What is Stochastic Oscillator?

Stochastic is a momentum oscillator that helps determine when an underlying asset’s price is relatively high (overbought) or relatively low (oversold). The standout feature of this indicator is that it’s useful both during trending and ranging markets.

Dr. George Lane developed Stochastic in the late 1950s. The indicator shows the location of current price of an underlying asset relative to its high-low range during a given period of time. Stochastic is composed of a %K line and a %D (Signal) line. Mathematically, %K for N-periods is derived using the below given formula:

%K = 100 X [(Close – LN)/(HN – LN)]

where,

C is the last closing price.

LN is the lowest low set during the “N” period

HN represents the highest price reached during the same “N” period.

%D = 3-period Simple Moving Average of %K

The above calculation tries to first find the high-low range during a specified period of time. Thereafter, the underlying asset’s current price is expressed as a percentage of this range, where 0% coincides with the lower limit of the range and 100% signifies the top. George Lane formulated the Stochastic oscillator based on the assumption that asset prices tend to close near the extremities before signalling a reversal. This is generally true during market consolidations. As such, Stochastic can be used as a standalone trading signal generator during such phases. However, in case of a strong trend, prices may move well past the extremities before turning around. Such times demand that Stochastic be used only for initiating trades in the direction of the broader trend, which can be identified by using popular trend followers like moving averages or MACD.

## How to Interpret Stochastic_Cross_Alert_SigOverlayM_cw Indicator For MT4

The Stochastic oscillator has two important lines drawn on it – 20 and 80. An indicator move below the 20-mark is typically considered oversold, while a break above 80 suggests that prices have moved in to overbought zone.  Readings below 20 for a 5-period Stochastic signifies price is close to the bottom of its 5-period high-low range. Similarly, the indicator above 80 implies the underlying asset’s price is near the top of its high-low range.

Buy signals (green arrows) on the Stochastic_Cross_Alert_SigOverlayM_cw Indicator For MT4 are generated when the %K Stochastic crosses over and moves above the %D Stochastic from below the 20-mark. Conversely, a sell signal (red arrow) gets printed when the %K Stochastic crosses below and moves under the %D Stochastic from above the 80-zone.

Another notable feature of the Stochastic_Cross_Alert_SigOverlayM_cw Indicator For MT4 is that you can get on screen, email and/or mobile app notifications, every time a buy or a sell signal gets plotted on the price chart.

## How to Use Stochastic_Cross_Alert_SigOverlayM_cw Indicator For MT4

Most professional traders will attest to the fact that the best money is made in trending markets. A profitable strategy using the Stochastic_Cross_Alert_SigOverlayM_cw Indicator For MT4 would be to first identify the major trend on a larger time-scale (4 hour chart). If the 20-period simple moving average (SMA) is above the 50 SMA, the trend is considered up. We next switch to the signal time-frame (1 hour chart) and wait for the Stochastic_Cross_Alert_SigOverlayM_cw Indicator For MT4 to print a green arrow. Contrarily, if the 20 SMA is below the 50 SMA, the trend is down and our bias is for short trades, which get triggered once the Stochastic Cross Alert generates a red arrow.