Stochastic High Low Forex Trading Strategy For MT4

 

Table Of Contents:

  1. Stochastic High Low Forex Trading Strategy For MT4
  2. Critical elements used in this system
  3. Functions of the critical elements
    1. Stochastic indicator
    2. Highs and lows
    3. Support and resistance level
  4. The long trade setup sequence
    1. Stop loss
    2. Take profit
  5. The short trade setup sequence
    1. Stop loss
    2. Take profit
  6. Stochastic High Low Forex Trading Strategy For MT4 – Useful advice
  7. Stochastic High Low Forex Trading Strategy For MT4 – Useful advice

 

Please note: This strategy was publicly published in the trading community and is free to use. We do NOT make an attempt to decide if this strategy is profitable or not, because we know that the major factors regarding trading results are the skills/experience of the trader who executes the strategy. Therefore, we are mainly explaining the components and rules of the strategy. If applicable, we are highlighting advantages, disadvantages and possible improvements of the strategy.

 

The Stochastic High Low Forex Trading Strategy For MT4 is based on the well-known stochastic indicator which is one of the standard indicators of the MT4 platform. The signal lines of the stochastic indicator are swinging between the values 0 and 100. It is commonly known that values below 20 are indicating oversold regions and values above 80 are indicating overbought regions.

Values below 10 and above 90 are showing even more extreme regions which are usually followed by a price reversal. We will be using these extreme regions as the first conditions that need to be met to start a trade. Before you look for a trade signal, you should check the direction of the trend of the bigger time frame first. Initiating trades in direction of the bigger time frames will ease the overall process of trading in the long run.

 

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Critical elements used in this system

 

  1. Stochastic indicator
  2. Highs and lows
  3. Support and resistance level

 

Functions of the critical elements

Before you start using this strategy, you should learn about the critical elements used in this system. Since the Stochastic High Low Forex Trading Strategy For MT4 relies only on one indicator, you need to use some critical elements to improve the functionality of this system.

 

Stochastic indicator

We have already discussed the basic functionalities of this tool. But to make things easier, we are going to set a range for the buying and selling order. If the signal lines reside within the 80-100 zone, we should be looking for the short trade signals only.

Input parameters for the stochastic indicator

On the contrary, if the signal line resides between 0-20 zones, we will be looking for the long trade signals. And in the input parameter, the %k period is set to 14 and the %D period is set to 3. And in the price field section, the value will be set to high/low.

 

Highs and lows

To understand the Stochastic High Low Forex Trading Strategy For MT4 much better, we need to have a sound knowledge of the market highs and lows. When the price of a certain asset reaches an extreme value breaking the previous record high, we term that point as the high for that certain asset.

On the contrary, when the price of an asset breaks below record low or secure a new lowest price in the asset for a defined time range, we call that point the low. The highs and lows will be used to determine the profit target in this system.

 

Support and resistance level

To use the Stochastic High Low Forex Trading Strategy For MT4, we should have sound knowledge about the support and resistance level. Support is such a price zone that refuels the bulls and pushes the price to a new high. On the contrary, resistance is such a zone, which limits the bullish rally and causes the price of a certain asset to fall.

Support and resistance level 

To draw the support and resistance level, we will be using the highs and lows of the market. In general, we will use the horizontal line or the trend line tool to determine the potential trading zone.

 

The long trade setup sequence

We have already pointed out, the Stochastic High Low Forex Trading Strategy For MT4 performs much better in the higher time frame. So, we will be picking our desired trading instrument based on the existing trend in the higher time frame. Let’s see the conditions to execute the long trade based on this system.

 

Conditions to execute the long trade

  1. Pick an asset that is already in an uptrend and the price should be making nice higher highs or higher lows.
  2. Draw the support level by using the horizontal or the trend line tool.
  3. Wait for the price to test the support level and see if the bulls manage to close the candle higher than the support level.
  4. If you spot a bullish closing of the candle above the support level, take the confirmation from the stochastic indicator.
  5. At the stochastic indicator, the signal lines should be trading between the 0-20 zones. You may still take the long trade if the blue signal line crosses the 20 lines within the last one hour.

 

Execution of long trade

Stop loss

Usually, the support line is going to act as your reference level to determine the stop loss. You may place your stop loss below the support line or use the bullish candlestick to determine a tight SL. In case you rely on the bullish candlestick pattern to determine the SL, make sure the SL price is below the support level.

 

Take profit

To determine the take profit zone, we can use the most recent swing high in the market. But if you intend to use a more strategic approach, we suggest analyzing the critical resistance level. And please take profit in such a price zone so that the minimum risk to reward ratio for the trade is better than 1:3.

 

The short trade setup sequence

To execute the short trade, we will be picking an asset that is already in a downtrend. You might be thinking about why we are sticking to the trend trading method even though the stochastic indicator can identify the reversal zone. By taking the trades with the existing trend, we will be able to eliminate the risk of many false trade signals. Now let’s see the prime conditions to execute the short trade based on Stochastic High Low Forex Trading Strategy For MT4.

 

Conditions to execute the short trade

  1. Pick an asset that is already in a downtrend. Analyze the existing trend by using the H1 or higher time frame.
  2. Identify the resistance level and look for the rejection of the price. Once the rejection takes place, analyze the candlestick pattern.
  3. The closing of the candle must be lower than the opening price. Note that, the closing price will also be lower than the major resistance level.
  4. The signal line in the stochastic indicator should be trading between the 80-100 zones. You may still take the short trade if the signal line is slightly below the 80 levels. But the slope of the signal line must be negative.
  5. After analyzing the candlestick pattern and the data from the stochastic indicator, you may open a new short order with managed risk.

 

Execution of short trade

Stop loss

For the short trade, we should place our stop loss above the major resistance level. If you use a bearish price action confirmation signal, you may place the stop loss right above the tail of the bearish confirmation candlestick.

 

Take profit

We will be using the most recent swing low to determine the take profit level. But the minimum risk to reward ratio should be 1:3 or higher. Advanced traders can also analyze the support level manually for a better risk to reward ratio during the choppy state of the market.

 

Stochastic High Low Forex Trading Strategy For MT4 – Useful advice

A stochastic indicator is often known as a leading indicator. As a trader, you should understand the core difference between the leading and lagging indicators since it will help you to use the stochastic indicator in a much better way. 

 

So, what is a leading indicator?

If the indicator analyzes the market momentum and defines the overbought and oversold state of an asset before the actual reversal takes place, we can call it a leading indicator. That’s why we should always use the stochastic indicator in the higher time frame as the trade signals will be generated before the actual reversal takes place.

 

Stochastic High Low Forex Trading Strategy For MT4 – Useful advice

The Stochastic High Low Forex Trading Strategy For MT4 provides a simple solution to the retail traders to find the sweet trading spot. But your success is not only related to using the stochastic indicator since you need to identify the support and resistance level properly. Those who are new to this trading industry should learn about the critical elements mentioned in this article by using the paper trading account. Once they have sound knowledge, they can expect to identify the trade signals with the aid of this strategy.

Every trading system has some pros and cons. And no one can say, that a certain system will keep on generating profitable trade signals. So, while using the Stochastic High Low Forex Trading Strategy For MT4, you should trade with low-risk exposure and be prepared to deal with occasional losing trades.

 

Download the complete system description and the files here:

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