The Stochastic Oscillator is a very popular Metatrader 4 indicator and often used in forex strategies and systems.
The indicator fluctuates between 0 and 100.
Value 0 is extremely oversold, value 100 is extremely overbought.
The indicator is very often used to trade overbought and oversold market conditions in trending markets.
It works best combined with a trend indicator, for example, moving averages, Bollinger Bands, ADMI,..
Stochastic works for scalpers, day traders, swing traders and position traders.
The EUR/USD H4 chart below displays the Stochastic Oscillator forex indicator in action.
Basic Trading Signals
The signals from the Stochastic Oscillator are easy to interpret and goes as follows:
Buy Trade: Open buy order when Stochastic crosses back above 20 from below.
Sell Trade: Open sell order when Stochastic crosses back below 80 from above.
Exit Trade: For long trades, close near the 80 overbought level. For short trades, close near the 20 oversold level or use your own preferred exit method.
Tip: Use Stochastic together with a trend-following indicator and take trades only in the direction of the overall trend.
Bullish trend? Trade oversold signals near the 20 level, avoid sell signals.
Bearish trend? Trade overbought signals near the 80 level, avoid buy signals.
MT4 Indicator Characteristics
Currency pairs: Any
Platform: Metatrader 4
Type: chart pattern indicator
Customization options: Variable (K Period, D Period, Slowing) Colors, width & Style.
Time frames: 1-Minute, 5-Minutes, 15-Minutes, 30-Minutes, 1-Hour, 4-Hours, 1-Day, 1-Week, 1-Month
Copy and paste the Stochastic.mq4 indicator into the MQL4 indicators folder of the Metatrader 4 trading platform.
You can access this folder from the top menu as follows:
File > Open Data Folder > MQL4 > Indicators (paste here)