EricFX Stoch Method

I decided to start a news thread with my methodology, will be more simple to me to follow all question.

Part1 : this post
Part 2 : http://www.forexfactory.com/showpost...79&postcount=2
Part 3 : http://www.forexfactory.com/showpost...4&postcount=13
Part 4 : http://www.forexfactory.com/showpost...1&postcount=21
Part 5 : Soon
My Setup is :

SMI (Stochastic Momentum Index) 5/3/3/3, you can use a Full Stoch if you dont have this indicator.
Slow Stochastic, 14/3/3
TimeFrame : 30M/4H

PART 1:
Usualy i trade 10 paire but for all my exemple ill use EUR/USD, one of the most traded. In the screenshot you see all trade i took from the 26 april until now on the 4H timeframe, the 3 Diamond is all trade i didnt took but all 3 was a good trade and the square was not a good one. the First diamond have a wierd shape, when you see a shape like that usualy the trend begin to loose it momentum, but in this one he didnt do that. The Second Diamond was too low for me to go short. For the last Diamond if you look at the momentum before it moved up, its was realy realy weak, so for me usualy ill wait for the Stock to go in the 70~ before taking a trade to see a better momentum. For the square, the stoch didnt reach near 25 so for me its a no trade to go long, too weak momentum to have a strong feeling in it.

For right now i just wanted to show the 4H chart cuz its your primary tool to trade,it show you where the price go and you get a better feeling of the momentum.If you just started to trade with the Stochastic , only trade this timeframe until you have a good confidence in the Stochastic, the Slow Stoch is your trigger, the SMI is your warning, the 80/20 line are your last entry , after that, too late if it was upper than 80 and lower 20 (i dont enter after it broke it by more than 5-6 point, if im in, good, if not , ill wait for the second signal)

The first 3 trade was in a sideway market, going up and down and we got 1 wispaw (The Square), Its why you need spend hour and hour and hour at looking at how react the Stoch in all type of market cuz its easy to follow a hard trend but in weak market you need to understand how it react. For all people who read that and think they only need to sell/buy when the Stoch cross and its done, good , that will make more money in my account, for the rest of you who will take time to study this indicator and learn how the market react with it, im sure you will be happy.

Ill post at the end of each day all signal we got with the Stoch on eur/usd ,and analise with you all how i read it, there alot of thing to learn from that indicator but i didnt have the time right now to write all thing i want to say in one post.But ill take the time after each day.

The last thing, if on the 4H the Stoch look wierd, dont try to see on the 30M if it look better, maybe it will look better but that will not make you a better market to trade

Disclaimer : Take all trade at your own risk.

P.S i invite you to follow the TEB sytstem as well , alot of good information
Best Regards,
EricFX

Part 2:
Money Management
I always use 2 lot when i take a trade.The first one have a static TP, usualy its at least 2 time my SL.When my first target get reach i move my SL to BreakEven + 1 for the second Lot, its my runner with no TP.ill only close it if i get a strong signal in the opposite side or my BE+1 get reach.i dont care if the SL get hit, im +1 pips for that lot in the worst thing.There also other thing i look for my TP on this one but ill talk about it later, i want to keep it simple for right now.

Leverage:

Leverage its what who can kill your account realy fast if you have very little money in it like 1k-2k, you should not risk more than 2-3% of your account by trade. So with a 2k account, 2% its 40$, so 4 pips with standart lot, its stupid to put a SL at 4 pips, but with a 10:1 leverage you have 40 pips to play with.High leverage will do another thing too, We all fear to loose alot of money in one trade and myself include and when people fear too much they will not enter in the market when its the time to enter but will wait and see, at the end they enter at the bottom and the market retrace against them and now they begin to be in "Hope Mode".

Account minimum:

You need to have a good amount before thinking to make decent money by month, if your account is too small you will not be able to trade more than 1-2 paire at once because of your SL.You should at least have 10k and only trade 0.1/0.5 standart lot. Lost is inevitable, you can have a bad day, but you can have a bad week too. Its not a problem but you need to be able to come back the next week .

Number of trade by month:

Don try to make 200 trade by month if you dont think to make at least 30-40 pips with each trade cuz if you have by exemple 3pips spread, with 200 trade its 600pips your broker earn and not you.Its why having a Runner (the second lot) its so important, you dont take any more trade on the paire until this one is closed.That will save you to enter/exit too often.

Best Regrds,
EricFX

EricFX

In my studing this weekend
of all the stoch system on ForexFactory
I find this the best!!
its basicaly the same as TEB2
I was amazed some one else was doing the same

because you have been doing for 8 years
I look forwards seeing what trick you have

TEB

On MT4 platform which is used by the majority of traders here, we have one type of stochastic only

Hi Howard,
try this one and see if it works. it's for MT4.
Also, if you go to MTF Stochastics thread you will find alot of other Stoch indicators. Another place for a bunch of different Stoch stuff in at forex-tsd dot com.

Hi Howard,

Dont worry too much about the SMI, use a standart Stoch and you will have about the same result, but if you can have a SMI , its better.The most important here is the 14/3/3, its with this one you will enter.

Best Regards,
EricFX

Thanks for the indicator KudzuFX. I didnt tested the indicator so if anyone have a feedback on this one, let us know because personaly i dont use the MT4 platform.

Best Regards,
EricFX

That's great, thanks a lot

You can have many type of stoch with different TF in one chart. Try this indicator. I'm using it..and it is very helpful.

Thanks a lot, I had this one in my folder , it is for multi time frames on one chart, but SMI is different

Thanks EricFx this is some good stuff. Looking forward to following your thread....

Both indicators on GBP 4h

PART 3:

Stochastic S/R && how to follow a trend on 4H TF

The 80/20 line:
The 20 Line is our bigger resistance, the price in a weak trend will not stay long time there and same for the 80 line.When you get a warning in the 81+/19- zone, dont enter , wait for the stoch to break this level.if the market are unable to break it, its a good entry to add more lot if you was in but if you do , monitor closely.

If you look at the screenshot, you will see from the end of 9April until the 21, we had a strong up trend and alot of opportunity to reenter more lot. At the end of the 16 april we got a sell signal, i didnt close my second lot but i took the sell signal, and ended with BE+1 on this one, the trend was not over and i was still in with my runner of my first long trade.

Each level can act as a resistance , you can use it to stay in a trade, when it breach the resistance, close your runner and wait for another signal but its up to you, its a just another way i found to not over trade.

Its why on all my chart i posted you didnt see anything on the bar chart like a trend channel or thing like that cuz i can do that with the stochastic directly but its up to you if you feel better at doing that in other way.The only thing very important here its to make pips.

Best Regards,
EricFX

Its hard to me to say if the SMI use the right equation cuz you dont use a Slow Stochastic with your 14/3/3 but a regular one so i cant compare the smi with the slow stoch

Best Regards,
Eric

Hi Eric,

thank's for your very interesting method.

What kind of stop loss strategy do you use?

I found this info. Maybe it will be helpful.

. . . . . . . . . . . . . . . . .
The Stochastic Momentum Index (SMI) is based on the Stochastic Oscillator. The difference is that the Stochastic Oscillator calculates where the close is relative to the high/low range, while the SMI calculates where the close is relative to the midpoint of the high/low range. The values of the SMI range from +100 to -100. When the close is greater than the midpoint, the SMI is above zero, when the close is less than than the midpoint, the SMI is below zero.

The SMI is interpreted the same way as the Stochastic Oscillator. Extreme high/low SMI values indicate overbought/oversold conditions. A buy signal is generated when the SMI rises above -50, or when it crosses above the signal line. A sell signal is generated when the SMI falls below +50, or when it crosses below the signal line. Also look for divergence with the price to signal the end of a trend or indicate a false trend.

The Stochastic Momentum Index was developed by William Blau and was introduced in his article in the January, 1993 issue of Technical Analysis of Stocks & Commodities magazine.

Congrats and Good stuff, look forward to more gems...

Alex

Hi KudzuFX,

A SMI is a double smoothed %K stochastic, i include a screenshot.

Best Regards,
EricFX

That will be my "Part 4" that should be ready tonight, else tomorow.

Best Regards,
EricFX

This is great stuff!!!

Thanks
TEB