MTF Stochastics

For the charts I am using StrategyFX.

Here is the down swing I would have waited for. Notice how much better positioned the 15/30/1H charts are in relation to each other than they were at 8:00 GMT moving up. This gives me more confidence to put a trade in beacause even if we get a turn up against us, where will it go? Not too far. More likely the 3 time frames will push the 4H on it's continued down trend.
The only factor here will be the GBP news...which means you would have to be out of this trade before that news arrived....to be safe.

Hello Spud,

I just finished reading your doc. Well written. I will be reading it over several more times today.

Thanks again, for being generous with your time and knowledge.

Regards,
Clansman

This chart is showing clear divergence between the stochastic and price. A sure sign price is going to be a lot stronger down when the 15M turns.

the explanations and the charts are a great help...

many thx
river

Your document is an outstanding piece of work.... Thank you again for your continued generosity and unselfishness... You're a rare breed in today's world and I salute you.... My question-- approximately, how many good setups do you see in a day?

If you chase pips as I first outlines in this journal, you will probably find about 3 trades a day on average. With the escalator, probably a few a week.

It is a matter of risk. If you wait for a trade like April 5 at 8:00 GMT, that is what I would call mid-high risk and you can find many of these. If you wait for a trade like the one at 12:30 GMT, this is low-mid risk and you will find less trades but more success.

I go back to my 20 pips a day rule. If you are averaging that through both pip makers, than take caution and pick the best trades. Trade both for a month and you will see that you will be way over the 20 pips a day trading the safest opportunities.

Although I didn't mention it in my manual, divergence can reap some nice rewards.

Notice how this 15M chart from right now has diverged as the stochs went up and the price went down. Notice when the stochs turned down the price accelerated downwards...this is an easy 50 pips so far.

There is much higher risk in divergence trading because usually you only see it on one time frame. It's a tool for pips...but wait for the stoch to turn!

If your wondering what I am waiting for to enter the next trade, it is the 4H stoch to come down to the 20 line and turn up again for a long escalator trade when the time frames align.

In the meantime there are downward moves to play with. I would avoid any long trading until we have a sign from all time frames and the 4H has defined a move upward.

I'm just going to wait for the 1H and 4H to show their move.

Entered at 233.80 short for a really "short" trade . I hope to take some pips before the reverse.

Hey Spud,

I really appreciate the explanation you posted earlier. I see now that stochastics being close to the line(80 or 20) is quite necessary for the sake of certainty. I ended up losing 10 pips on this trade, as I saw both the 15 min stoch's and 30 min stoch's turn down. I was a bit unsure at this point because the 1 hour was seemingly unaffected; wasn't quite sure how to play it out. Anyway, I earned 9 pips yesterday total, and I do believe that qualifies as a winning day !


I also see the major long opportunity coming up, and am quite ready for some easy pippage

Thanks again,

Kevin

You'll probably have price go against you for a bit in the short term.

Yes, the reverse is coming too early. Im loosing in that position right now.

Yes, I don't think you are going to have much fun over the next little bit. Flip on the 5M stoch and see how much affect the down has on the price...hopefully it affects the 15M stoch to some degree.

Well I closed the position with some loss. It's a demo account and Im learning. Now waiting for the next long setup. THE KEY IS: "PATIENCE".

Thank you !

Spudfyre,

I used your system last night and early this morning (I am in Toronto).
In both I put my limit at +10 pips. End result: I am +20 pips positive. This morning trade took less than 15 mins. I opened it, took a shower, and checked my chart: + 10 pips. Shaved and left for my 9-5 job with a smile on my face.

Reading your previous analysis I realize that I might have been lucky with my trade this morning. I will continue to look for perfect setups, and be sure I am confident with your system, which is working very well.

Thanks a lot for sharing your document!!!!

Hi Spudfyre, i've read a little on your Stoch write up and likens to the idea.

Looks like the 3 mentioned charts lined up below 20 and while we're waiting for mr 4H to lead our hand, does it mean we might only see a long signal after the 4H is up, hence sometimes you would set buy or sell limits if you see optimum trades coming up but have to leave your computer.

The problem of above 80 and below 20 is that stochastics react in a different way then on the way between 20-80 or vice versa. There can be HUGE pip movement under the 20 or over the 80 line that can bury you if you get in a trade too early. If you look back at the early part of the journal I made an early entry and the effects were riding out a 53 pip draw down.

You really want to wait for the stoch lines to come up across the 20 before going long and prefer the 4H chart to be leading our trip up. When it doesn't happen like that, you simply create more risk for yourself.

The biggest, hardest, most human error cause of failure with stochastics is to jump in too early because they tell us so much of what will happen....but you have to wait for it to happen.

Spudfyre, Just got done reading your trading guide. When i first started out trading this is what I was looking at mostly....stochastics. Your insight is so simple yet effective and fundamental. Thank you for the time that you have spent writing this up and answering us other traders questions. I look forward to getting back to stoch trading. Cheers...

I'm going to re-address the 80/20 lines as there is reason to my madness for waiting until we trade above the 20 or below the 80.

Without doing the math, you will notice that stochastics rarely ever reach zero (0) or 100.

The stochastic is very linear between 80 and 20. That means it reacts almost on a 1:1 basis with price movement within this range. If this linear relationship held, it would mean that in a long situation the stochastic would plaster itself at 100 and stay there as the price continued to keep rising in a long trend. This of course does not happen.

Using a long trend as an example. When the stochastic rises above 80, it is no longer in 1:1 ratio with price movement. In fact the stochastic resistance for upward movement increases exponentially as price rises. This is why we rarely ever see the stochastic hit 100.

I'm simplifying this quite a bit because the stochastic and price don't really move 1:1 both up and down. Movement differs in the stochastic with the strength in the upward or downward trend relative to the trend of the price. This is what makes it such a powerful tool.

So in a long trend as the price continues to move up the stochastic keeps resisting moving up and amplifies movement down. This can throw a trader off as they see any reverse movement as more significant than it really is while looking at movement in the same direction as weakening. Usually the exact opposite is true.

The danger of entering a trade when the stochastics are below the 20 line, for example is that the price could continue to drop a huge amount.

Over 3 or 4 time frames with the price above the 20 line in a long trade (and under 80), you have reaction time and predictability on your side.

This is why I STRONGLY recommend you not enter any trades with stochs in the above 80 or below 20 range. There is obviously much more significance with a 4H chart in the above 80/below 20 zones than a 15M chart.