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The Art of Trading with MTF Stochastics

  • #1
  • First Post: Oct 17, 2007 4:06pm Oct 17, 2007 4:06pm
Hello Traders!

When Spudfyre generously gave his time to developing his original thread on Multiple Time Frame (MTF) Stochastics, I stayed with it while he mentored each and every one of us on the specific details of his methods. No doubt, MTF Stochastics, with experience, can be a terrific method of trading. Spud was a great teacher and mentor, but he has sadly vanished from the scene. Hopefully he will return one day, but until he does, I'd like to continue to learn as much as I can. And, believe, me, I still have a great deal to learn.

His original thread (suggested reading) can be found here:

http://www.forexfactory.com/showthread.php?t=22105

So, I've decided to start this brand new thread, devoted exclusively to The Art of Trading with MTF Stochastics. The specific purpose of this thread will be to help us learn not only the basics, but the more subtle nuances of the MTF Stochastic methodology, so that we can all become better, more efficient -- and successful -- traders.

It is my desire to maintain more of a "purist" group, not so involved in cluttering up our screens with endless auto-pilots and mechanical indicators (except, of course, for the more common basic pivot points, Fibs, S&R lines, and perhaps a few MA's) so that we can concentrate on seriously honing our trading skills and learning how to utilize and/or integrate MTF Stochastics effectively (if not exclusively), in order to add many more pips to our daily diets.

Let's share our MTFS trades, explain what worked for us (or didn't!), how we set up our charts, how we identify a proper setup, what to look for, and so on. I would like to make it clear that I am NOT a long-time forex trader, and definitely NOT an expert. I'm just very interested in this methodology, and I want to refine my skills as much as possible, while sharing my experiences with others.

I invite you all to please feel free to ask questions and contribute your knowledge whenever you can.

Thanks!
Jeff Singer, K2KV
  • #2
  • Oct 17, 2007 4:24pm Oct 17, 2007 4:24pm
Hi all,

One of my biggest problems with this technique (I think) is that it is very rare when I can actually find a really good MTFS setup. So, I tend to trade on "nearly" good setups (bad, I know). My results have been mixed, of course.

I trade mostly GBPUSD, EURUSD and EURJPY since spreads are pretty small on these pairs, and I trade mornings, EST on the east coast in NY. And I usually trade the shorter time frames, like 5m/15/30.

Now, just a little while ago I came upon a great setup, took the trade and made a quick 20 pips while I was posting this thread! Funny how things work out...

But, I wonder if any of you trade other pairs that setup better for MTFS, or if you find that some other times may offer more opportunities.

Thanks!
Jeff Singer, K2KV
  • #3
  • Oct 17, 2007 5:54pm Oct 17, 2007 5:54pm
http://i43.photobucket.com/albums/e3...d10172007b.gif

This is how I trade. Use H4 Stoch to find the trend. If the trend is uphill, I go LONG only. It's one-way trading. Vice versa for a downtrend. Now the problem is the StochBars indi doesn't refresh. So I have to use two H4 Stoch windows.

Edit:
So how do you set up your way to find a trend?
  • #4
  • Oct 17, 2007 6:10pm Oct 17, 2007 6:10pm
Hi Banzai,

Thanks for posting your chart.

I see you enter as the stoch turns up, but is there a specific exact point at which you enter? Your charts do not seem to indicate the stoch levels, so I'm wondering what gets you in.

Also, would you please explain your two lower windows (with the jagged stochs and colored bars)? What do they tell you?

Thanks much!


Quoting banzai
http://i43.photobucket.com/albums/e3...d10172007b.gif

This is how I trade. Use H4 Stoch to find the trend. If the trend is uphill, I go LONG only. It's one-way trading. Vice versa for a downtrend. Now the problem is the StochBars indi doesn't refresh. So I have to use two H4 Stoch windows.

Edit:
So how do you set up your way to find a trend?
Jeff Singer, K2KV
  • #5
  • Oct 17, 2007 6:24pm Oct 17, 2007 6:24pm
^^ Well, I enter LONG if %K crosses up %D but %D has to be under 50. Notice %D and not the other one. That's why you see level 50 in my Stoch (5,3,3) indi window. I make less money in 1-way trading but it's safer for me. In live trading, it happens very fast and I don't have a fast reflex to react quickly.
The jagged Stoch window is H4 Stoch (14,3,3). That's my short term trend. The blue line should be %K and the red line should be %D. Since %K crosses up %D, that's an uptrend and I just go LONG only.
The StochBars is the same as the other H4 Stoch (14,3,3) window. Green is an uptrend, red is a downtrend. It's just another way to save window space.
  • #6
  • Oct 17, 2007 6:56pm Oct 17, 2007 6:56pm
Well I found the thread by spydfire a while ago. I have used this method already when I was trading stocks many years ago. But thanks to the great people here some great indicators has been made to be placed easy in a chart (BarStoch) and is much easier to use in the forextrading.

The trading is as simple as it gets. I trade the 15m period, daytrading, and all i want is the 15m, 30m and the 1h stochBar to all turn green or red. The 4h stoch will just give som "larger" guidance on trend and power. On GU I usually go for 15 pips if trading against 4h trend, and 20 pips if with the 4h trend.

The problem: The stochbars "updates"/repaints larger timeframes if they are about to change direction. This means a signal could suddenly appear 3 bars ago, and that sucks, cause often the ride is already over. Or even worse, a signal was good 4 bars ago and then suddenly the 1H stoch repaints and then the signal 4 bars ago was no signal.. Often you're behind like 18 pips when this happens and havo no other choice than bail the trade.
Indicator is this : http://www.forexfactory.com/showpost...3&postcount=14

Now.. the MTF stochs works like this if I understand it right. This is on a 15m chart.. the 15M stoch will always be correct, the 30M stoch calculate on every XX:00 and XX:30 and 1H stoch calculates on each hour bar..etc..
How do you think our MTF Stochs would perform if they were based on bars and not time? Again.. 15M chart, 30M stoch would calculate on the last two bars, not just 12:00 ->12:30, 12:30 -> 13:00 but on bars so that it will be 12:00->12:30 and on next 15M bar it would be 12:15->12:45. The same for the 1H stoch that would need the last 4 bars for calculation, 12:00->13:00 and on next 15M bar it would be 12:15->13:15. This way larger timeframe Stochbars would not repaint and we would always have a "fresh" stoch on all our timeframes.

I hope you all understand what I'm getting at.. anyone that could program a MTF stoch like this?
  • #7
  • Oct 17, 2007 7:03pm Oct 17, 2007 7:03pm
^^ Me too. I was about to talk about the repaint problem. I'm not a very good programmer so I don't know how to fix this problem. Hmm.
  • #8
  • Oct 17, 2007 7:06pm Oct 17, 2007 7:06pm
Okay,

Now I understand. The crossing of k over/under D is an interesting approach. I assume it's successful for you.

So, you watch the 4H and trade the 15M? Thanks for taking the time to explain.

Here, I have multiple monitors: dual 19" on my PC, and a very large screen on my Mac. On the PC I have three separate windows set up for each of three different pairs (9 windows total). I have a separate stoch indicator (and fibs) in each little window, and they are set individually to 15M, 30M and 1H, for each pair I watch. So, I am able to glance at my monitors and see three different stochs for each pair I trade. Gives me a good quick visual of possilbe setups.

On the Mac, I watch 5M, 30M & 1H, but just for one pair. I also run a few different indicators including levels (pivot, S & R), plus several MA's, including 50 SMA, to indicate the longer trend. I've never found the 4H stoch to tell me anything. Of course, I could be wrong, and poerhaps I should start watching it more closely.

I take my trades through the MAC, and utilize the extra space for email, browsing, and other things I might be doing.

Thanks!



Quoting banzai
^^ Well, I enter LONG if %K crosses up %D but %D has to be under 50. Notice %D and not the other one. That's why you see level 50 in my Stoch (5,3,3) indi window. I make less money in 1-way trading but it's safer for me. In live trading, it happens very fast and I don't have a fast reflex to react quickly.
The jagged Stoch window is H4 Stoch (14,3,3). That's my short term trend. The blue line should be %K and the red line should be %D. Since %K crosses up %D, that's an uptrend and I just go LONG only.
The StochBars is the same as the other H4 Stoch (14,3,3) window. Green is an uptrend, red is a downtrend. It's just another way to save window space.
Jeff Singer, K2KV
  • #9
  • Edited Oct 18, 2007 8:17am Oct 17, 2007 7:19pm | Edited Oct 18, 2007 8:17am
Hi Frankie,

Welcome aboard!

You would be much better off just watching the simple curves of different TF stochs. They are more natural and the curves reveal much more than red or green colors are able to. You can get an indicator or a template that will display multiple time frame stochs in one window, from the original thread.

I prefer to keep this thread on topic, so I would ask that requests for programming or programming fixes please be posted on one of the many other available threads (including Spud's original thread) where entire communities of excellent programmers will be more than willing to assist you. I appreciate your cooperation.

Do you use the 5.3.3 or 14.3.3 settings? I have been using 14.3.3, but have recently started to watch the 5.3.3 and I think the latter is a better indicator.

Thanks so much for sharing you method!
Jeff Singer, K2KV
  • #10
  • Oct 17, 2007 7:38pm Oct 17, 2007 7:38pm
Banzai,

To answer your question, I wait until all three windows show the stochs moving in the same direction, all below 76.4 heading down for short, up past 23.6 for long. For more reliability, I like to see the stochs pass at least another step closer to the other side (61.8 or 38.2). I won't generally trade into a fib line or S & R line. That's it!


Quoting banzai

Edit:
So how do you set up your way to find a trend?
Jeff Singer, K2KV
  • #11
  • Edited Oct 18, 2007 8:19am Oct 17, 2007 9:47pm | Edited Oct 18, 2007 8:19am
I think I should, at this point, clarify that I have no problem with folks using indicators on their charts, and asking others for help with their indicators. I have and use many indicators myself, and am a serious electronics geek with far too many computers, too much radio equipment and other questionable gadgets, so believe me when I tell you -- I understand.

Nevertheless, the reason I started this thread was to break away from the original thread which had, in my opinion, become so cluttered with layers of indicators, programming codes and EA fixes, that human interaction relating to trading with MTF Stochastics seems to have taken a back seat.

I simply don't want that to happen here. The intention of this thread is to create an interactive environment where the focus in on -- The Trade. And if I'm unable to keep us on track, it will surely see a quick demise.

Thanks for understanding!
Jeff Singer, K2KV
  • #12
  • Oct 18, 2007 1:44am Oct 18, 2007 1:44am
This is my favourite MTF stochastic trade - the rubber band trade.

When the daily stochastic is oversold (or overbought) I wait for the hourly stochastic to get to the other extreme. I use price action to enter (I don't wait for the hourly stochs to turn) & target half or two thirds of the trade at the first support or recent low & trail a stop on the remainder. I aim for a risk reward ratio of 2 or better on the first portion of the trade.

Six possible trades are shown on the chart below. Trade 1 would have been stopped out & I wouldn't have taken 4 because of the time of day. Trades 2,3, 5 & 6 would have delivered pips.
Attached Image (click to enlarge)
Click to Enlarge Name: StochasticRB.jpg Size: 56 KB
  • #13
  • Oct 18, 2007 7:40am Oct 18, 2007 7:40am
I've used MTF stochastics as my primary "indicator" for awhile, and was glad to see spud post his thread awhile back as it spurred enough interest for a few good indicators to be written. I combine MTF stochastics, daily pivot/S/R levels, MACD, and RSI as confirmation. Basically what I'm looking for is to pick the daily high and/or low near a S/R level, I need to see stochs on the 5/15/30/60M all overbought/oversold, a weakening/strengthinging MACD, and RSI coming off a high or low.

Here's a chart from Oct 15 on EURJPY to give you an idea of how I trade:

GREEN BOX: R2 level at 167.65. I don't get in right away at this level, but watch price action in this zone. There is a triple top, which tells me that level should hold

BLUE BOX: 5/15/30/60M stochastics all overbought, and turning down on the triple top. I got in at the doubletop at 167.60

MACD: Notice the "weakening" in MACD. The top peak was before the first test of R2, then the next lower peak was on the doubletop (my entry). When price came back a third time, MACD had already turned/weakened so I consider that confirmation.

RSI: I don't rely on RSI, but like to see it on the right side of my trade, in this case heading south.

*** The only other thing I do is to look at the price levels of correlated pairs. When trading any YEN cross, I make sure the others are all exhibiting the same MTF stochastics and preferrably near a pivot/S/R level as well.

Regarding exits, I use fib retracement levels as my exit levels OR other S/R levels. I target 38.2 to scale off 1/2 my position, fib50 for 1/4 and 61.8 for remaining 1/4 position. However, I am able to manage my trades all day so I can alter my exit strategies based on what I see the market doing.

This strategy works well for me, and I primarily trade the majors with it. When you can pick a daily top/bottom on a good volume pair such as EURJPY, you have a lot of room to work with. EX if the daily range of EY is 150 pips, then my exit targets are 57 pips (fib38.2), 75 pips (fib50), and 93 pips (fib 61.8).
Attached Image (click to enlarge)
Click to Enlarge Name: oct15EURPJY.gif Size: 19 KB
  • #14
  • Edited 8:02am Oct 18, 2007 7:52am | Edited 8:02am
Here is what I see right now on EURJPY. Price action at the 165 level is consolidating, MTF stochastics are all oversold, MACD is turning up, and RSI is strengthening. Since price is in between pivot (165.44) and S1 (164.43) I am only taking a half position. USDJPY is right at S2 (115.55) which is good confirmation.

My entry is at 164.92, I'm placing my stop at fairly tight at 164.72-67 with my target level at 165.40 just inside the daily pivot (and fib50 is sitting on the pivot). Hence I'm risking 20-25 pips to gain 40ish...a 1:2 risk:reward ratio

Again this isn't an ideal entry because price isn't at a S/R level, but you can see my red dotted line which was strong resistance from yesterday.

EDIT: 6:02am The other thing I don't like to see (as is the case right now) is the EURUSD is just tagged R3 (1.4310) all MTF stochs are oversold meaning there's going to be more short-term downward pressure on the EUR (at least in my opinion). I will target 20 pips for 1/2 my position (165.12), move my stop to BE if this happens, with final target of 165.40 for the remaining 1/2)
Attached Image (click to enlarge)
Click to Enlarge Name: oct18EURPJY.gif Size: 15 KB
  • #15
  • Oct 18, 2007 8:31am Oct 18, 2007 8:31am
Quoting nitrofx
Here is what I see right now on EURJPY. Price action at the 165 level is consolidating, MTF stochastics are all oversold......
As I manage my open positions, I watch price action in the form of candlesticks. The attached screenshot shows major resistance in the 165.15-25 area. This is denoted by the long wicks of the candle on 5 consecutive 5M bars (25 minutes). Price keeps getting into this zone, finds resistance, then retraces back a bit. The way I read this is if this zone can be broken, we'll see price continuation upwards.

Update on my trade...1st target of 165.12 hit for +20 on half my position, still targeting 165.40 unless I see otherwise
Attached Image
  • #16
  • Oct 18, 2007 8:35am Oct 18, 2007 8:35am
Hi Nitro,

Thanks for joining us!

And what a very smart way to trade! I'll have to look it over some more, but I like your mutli-faceted approach. Thanks for sharing.

I'm watching the stochs come up now (it's 0934 here EDT) and will soon enter the trade myself if the move continues.

More later...
Jeff Singer, K2KV
  • #17
  • Oct 18, 2007 8:41am Oct 18, 2007 8:41am
Nitro --

Good observation, I also watch candlesticks.

I'd like to see price climb up over the 38.2 fib before I jump in.
Jeff Singer, K2KV
  • #18
  • Oct 18, 2007 8:53am Oct 18, 2007 8:53am
Quoting nitrofx
Update on my trade...1st target of 165.12 hit for +20 on half my position, still targeting 165.40 unless I see otherwise
My final target of 165.40 was hit so +20 on half, +48 on second half for a +34 pip average on the trade. This screenshot show a few things I was watching and updates from my earlier post:

RED BOX: The resistance/rejection area I mentioned before

RED ARROW: You'll see that price moved through this level with conviction (meaning on a healthy sized, full-bodied candle).

BLUE ARROW: My exit. Watch for a bounce off this 164.40-45 level since the pivot/50 fib levels are there, and 5M stochs are turning down.
Attached Image
  • #19
  • Oct 18, 2007 8:59am Oct 18, 2007 8:59am
I entered at 165.37 with stochs 5M/15/30 at 50/50/27, all moving up. Price had crossed the 38.2 fib. Moved up up 4 pips but got stopped quickly at 165.22 for a loss of -15 pips!

Quoting nitrofx
My final target of 165.40 was hit so +20 on half, +48 on second half for a +34 pip average on the trade. This screenshot show a few things I was watching and updates from my earlier post:

RED BOX: The resistance/rejection area I mentioned before

RED ARROW: You'll see that price moved through this level with conviction (meaning on a healthy sized, full-bodied candle).

BLUE ARROW: My exit. Watch for a bounce off this 164.40-45 level since the pivot/50 fib levels are there, and 5M stochs are turning down.
Jeff Singer, K2KV
  • #20
  • Oct 18, 2007 9:05am Oct 18, 2007 9:05am
Hi Charlie,

Thanks for joining us!

Are you saying that if the daily stochastic is at one extreme, the hourly is likely to move to meet it from the other side? And, aside from price action, that's all there is to t?



Quoting charlies
This is my favourite MTF stochastic trade - the rubber band trade.

When the daily stochastic is oversold (or overbought) I wait for the hourly stochastic to get to the other extreme. I use price action to enter (I don't wait for the hourly stochs to turn) & target half or two thirds of the trade at the first support or recent low & trail a stop on the remainder. I aim for a risk reward ratio of 2 or better on the first portion of the trade.

Six possible trades are shown on the chart below. Trade 1 would have been stopped out & I wouldn't have taken 4 because of the time of day. Trades 2,3, 5 & 6 would have delivered pips.
Jeff Singer, K2KV
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