Best Stochastic Settings for 5 minute chart

stochastic oscillator settings

Chart 9 shows Motorola (MOT) with a bear set-up in November 2009. The stock formed a higher low in late-November and early December, but the Stochastic Oscillator formed a lower low with a move below 20. The subsequent bounce did not last long as the stock quickly peaked. Notice that the Stochastic Oscillator did not make it back above 80 and turned down below its signal line in mid-December.

We will cover its structure, signals, and compatibility with other instruments. Moreover, we will test stochastic trading strategies in practice. Many traders fail to tap into the power of Stochastics because they are confused about getting the right settings for their market strategies. These helpful tips will remedy that fear and help unlock more potential.


Lane also used this oscillator to identify bull and bear set-ups to anticipate a future reversal. As the Stochastic Oscillator is range-bound, it is also useful for identifying overbought and oversold levels. SPDR S&P 500 Trust (SPY) shows different Stochastics footprints, depending on variables.

stochastic oscillator settings

To test whether combining stochastic oscillators with other indicators is profitable, I suggest using TrendSpider, our recommended stock research and AI power trading software. We should open a trade as soon as the bar after the pattern crosses its extreme in the trend direction. We will close the position as soon as there is a cross of stochastic lines either above 80% or below 20%. These are 5, 3, and 3, which provide sufficient signal density.

Stochastic Oscillator: a Step by Step guide to Day Trade with it

The underlying security forms a lower high, but the Stochastic Oscillator forms a higher high. Even though the stock could not exceed its prior high, the higher high in the Stochastic Oscillator shows strengthening upside momentum. The next decline is then expected to result in a tradable bottom. The Bollinger Bands indicator is the leading tool in this strategy, while the stochastic oscillator will be used as a signal filter. You can read more about them in my article “Bollinger Bands Indicator in Forex”.

  • When it moves above 80, the asset is considered overbought, while a reading below 20 indicates the asset is oversold.
  • On the chart, the bar with which we calculate the stochastic indicator is marked with green.
  • Together with oversold stochastic readings, a Doji would signal that the sellers are losing control, and may let buyers take over the lead going forward.
  • According to an interview with Lane, the Stochastic Oscillator “doesn’t follow price, it doesn’t follow volume or anything like that.

Together with oversold stochastic readings, a Doji would signal that the sellers are losing control, and may let buyers take over the lead going forward. For instance, some markets will have certain weekdays when they turn more bullish or bearish. And if you happen to spot a stochastic signal that corresponds with the tendency of that day, you may feel more secure in taking that trade.

Best Stochastic Settings for 4 Hour Chart

You can use Bollinger bands to provide insight into the normal volatility of the asset. You can use other tools, which we’ll look at later in the article. Below, we will take a closer look at each of these so you can better understand how to leverage this powerful indicator in your trading. I bought your book (price action trading) wonderful book, l learned a lot of things and l m still learning by following your you tube channel. During oversold or overbought, go back to SnR rules and candle anatomy to see it is reversal pin bar or engulfing candle or insider bar.

stochastic oscillator settings

The stochastic oscillator is a momentum indicator that compares the closing price of a security to its price range over a specific period. It consists of two lines, %K and %D, and oscillates between 0 and 100. The %K line represents the current price relative to the range, while the %D line is a moving average of the %K line. In our example, we will be using my favorite slow stochastic oscillator setting of 8, 3, 3 on a 15 minute stock chart. I will also be using a 20 period simple moving average and standard trend line channels.

What is the best timeframe for Stochastics?

Martin Pring’s Technical Analysis Explained explains the basics of momentum indicators by covering divergences, crossovers, and other signals. There are two more chapters covering specific momentum indicators, each containing a number of examples. A bullish divergence occurs when the price records a lower low, but the Stochastic Oscillator forms a higher low. This indicates less downside momentum, potentially foreshadowing a bullish reversal.