Forex trading is a viable alternative to earn a passive income if you want to diversify your investment portfolio. Forex trading goes beyond sitting in front of your laptop all day, monitoring different currency pairs to enter a trade position. If you are not using the right technical indicators, you will all day and not make money. The situation is even worse if you are a beginner, as you won’t even know where to start.
If you’ve concluded within you to start using technical indicators to enhance your trading strategies, one of the metatrader indicators you need to give priority to is the Stochastic indicator MT4. This indicator helps forex traders to determine the exact spot a trend would end. There are several benefits of knowing where a trend ends – from finding stochastic oscillator, entry, and exit points to determining the price point to enter a trade and everything in between.
In this article, we will take a look at how to install, modify, delete, and use the stochastic indicator for the MT4 trading platform.
Let’s get down to business.
What Is Stochastic Oscillator
The stochastic oscillator is a mathematical concept developed in the late 1950s by George Lane to compare where an asset’s price closed relative to its price at a given time. If displays two lines on the trading chart – while the first line (mainline) is regarded as %K, the second line, popularly known a %D, is the moving average of the first line. Also, the %D line is usually dotted while the %K line is a solid line.
We can interpret stochastic oscillator in three ways as follow:
• Sell when %D or %K rises above certain levels and then return below that level. Buy when %K or %D falls below a certain level and then rises above that level.
• Look out for the points where prices are making highs, and the stochastic oscillator doesn’t fall below its previous highs.
• Sell when the %K line falls below %D line and buy when the %K line rises above the %D line.
Stochastic Oscillator Calculation
While the Stochastic oscillator calculation may be difficult for you to comprehend, you don’t necessarily need to learn the calculation because the Stochastic indicator MT4 will get you the results in real-time. Below is the formula used to calculate stochastic oscillator:
• %K = (CLOSE-LOW(%K))/(HIGH(%K)-LOW(%K))*100
• %D = SMA(%K, N)
From the two formulas above, CLOSE is today’s closing price, HIGH (%K) is the highest point in %K line, LOW (%K) is the lowest point in %K line, N is regarded as the smoothing period, and SMA is known as the Simple Moving Average.
How to Install Stochastic Indicator MT4
- When you are on the chart, click “insert” and move your mouse over stochastic oscillators and indicators.
- Select stochastic oscillator
- Click and hold your mouse and move it to the point where you want the indicator to start.
- Release the mouse for the indicator to start.
Modifying the Stochastic Indicator MT4
Once you are done with the installation, you can adjust some parameters to suit your trading needs. For Stochastic indicator, there are two parameters you can customize:
• Visuals: You can adjust the indicator’s visuals to change the look, color, or the line thickness
• Periods: You can also adjust the number of periods the indicator would use.
Here is how to modify the stochastic indicator’s parameters;
• Right-click your mouse on the indicator
• Select “Stoch 5, 3, 3” to adjust any parameter to your trading style.
How to Delete the Indicator
When you no longer want to use the indicator, you can delete it from your trading chart. Below is how to remove the indicator:
• Right-click your mouse on the indicator
• Click on delete, and the indicator will disappear.
How to Use Stochastic Indicator
The indicator is scaled from 0 to 100. As soon as the lines are above 80, it means the market has been overbought. Similarly, when the lines are below 20, it means the market has been oversold.
Remember the rule above; if you want to make a profit, you should only buy when the lines are below 20 (when the market is oversold). Also, you should only sell when the lines are above 80 (when the market is oversold).
Conclusion of Stochastic Indicator Mt4
A lot of traders use the stochastic indicator MT4 differently. Some traders use it to determine price points to enter a trade; others use it to determine when the market has been overbought or oversold. Regardless of what you use the indicator for, it has the potential of improving your trading skills and earning profit in the long run.
The fact that the lines are below 20 doesn’t mean you should buy blindly. The same thing applies if you want to sell. Apply caution and do not rush into a trade. Additionally, do not use this indicator in isolation – ensure you use it with other technical indicators.
Meanwhile, there are additional tools and technical indicators on our platform, which you can leverage to improve your earning potentials. So look at it through this link and begin producing higher returns!