The Stochastic Signals Indicator is an MT4 overbought/oversold indicator that offers real-time price reversal signals for forex and stock traders. It weighs more on recent changes in price actions and mostly suits day and intraday trading.
Expert professionals combine overbought/oversold signals with candlestick patterns for identifying solid price swing areas. So, the indicator you use to determine the market momentum has to be consistent in delivering highly probable trend reversal signals.
Stochastic Signals indicator applies a 10-period %K, 3-period %D, and a 4-day signal MA, making a perfect configuration for M15, M30, H1, and H4 timeframes.
Buy Signal Generation with Stochastic Signals Indicator
The yellow line (%K) moves above the blue line (%D), signals a bullish crossover. For buy orders, such crossovers need to take place while the indicator value drops below 30 (oversold zone).
We’ll look for a buy signal when the indicator value starts increasing from the oversold zone. Also, avoid all types of buy/sell signals while the indicator levels roam inside the 30 – 70 levels.
In the above example, when %K and %D plot a bullish crossover below the 30-level, the price chart printed a bullish pin bar and a white cloud candlestick pattern offering a perfect opportunity for going long.
Consider closing buy orders whenever the indicator plot a bearish crossover at the overbought zone (above the 70-level).
Sell Signal Generation with the Stochastic Signals
Go short when the indicator value rises above 70 (overbought zone), and the %K drops below the %D, plotting a bearish crossover.
The price chart must print a bearish reversal pattern for sell confirmations while the indicator value starts declining from 90.
Hold the position once you enter short until the Stochastic Signals value hits the oversold zone (below 30) and plots a bullish crossover.
Besides regular price swing signals, this indicator also helps anticipate price breakouts and pullback trade setups.