Question about oversold levels in oscillators

Hello, Ive had some great success trading a stochastic oscillator strategy with multiple timeframes, the problem is that sometimes when i get my trade signal to go in ill enter and it will carry on going up a bit before storming back down.

Id like to ask the experienced traders of FF which other indicator/method (apart from price action) can be used to avoid prolonged oversold situations so we get in at a good time? I dont mind a little drawdown (up to 60-70 pips absolute max) but up to -20 to -30 would be ideal.

I look forward to reading your suggestions.

Dear
Each Oscillator has its own oversold levels for specific time frame and specific pair
The best way to determine oversold for any indicator look at the lowest level in the history of this time frame and for this pair
and at this levels you need to draw resistance line on both the price and on the indicator
you can sell under this Lines with stop loss if it violate this Lines
Also you can buy if the price violate resistance lines and add to your position while it retest this Lines again (retracement )
of coarse opposite for overbought !
I hope this help You
Thanks

Hello, i followed you from another thread that you started here. I must say that we have a common interest on Stochastic.

If by any chance, please spend some time reading Spudfyre's thread especially this one (if you haven't already).

He explains Stochastic like there's no tomorrow.

One thing that excites me a lot is the following diagram.



Have a nice day.

Hi Venividivici,

No indicator is capable of predicting what happens after you pull the trigger. Therefore, what happens after entry depends on your exit strategy and risk control.

Dear Atokys

I have read carefully most of your posts , i need to admit that i share your views.
I will be pleased to understand if you agree , what is your definition of Risk Control ? , i'm an active trader scaling in and scaling out my positions . when i open a position my risk exposure is well define , and i never discuss price action , price is always right , if i'm wrong i'm trying to find the best possible exit point , to protect as much as possible my NAV .
I will be delighted to hear from you about risk management.
Thanks for your time .

Hi Landsat,

My definition of risk control is above the specific technical system itself. Technical systems are different and person-specific. Matters of scaling in or out will only make sense within the logical framework of the system (only you can decide that). What matters is that you have tested the system rigourously over many different markets and over a long span of time and you are confident in its efficacy and ability to adapt to changing conditions.

So, on to "risk control". I believe in 3 types of risk control.

The first layer comes from your 'position size' which is how much you risk on each trade. You should already have this amount defined such that the ups and downs of your specific system do not go above your personal tolerance for heat. Each person's heat tolerance and ruin point is different, so as long as your position size reduces your risk of ruin, you're good to go. This is the main reason for backtesting a technical system.

The second layer comes from diversification across markets. If you split your system across a range of different weakly correlated markets, you gain diversification benefits in the form of reduced variance. Important to this second layer is the selection criteria for markets (if you simply pick markets that have performed the best in your backtest, you already have curve-fitted your system). Also, you must decide how to distribute your risk across the different markets. You can either implement rules that limit the number of positions a system can hold at once or you can just divide a total risk amount by the number of markets and take all signals. If you choose this second option, you may have to also diversify across different trading systems.

The third layer, diversification across different technical systems. There are many times where historically uncorrelated markets suddenly become correlated in the context of a specific system (such as the recent market surge that was no doubt felt over many different short-term systems that trade currencies). If you do not have a rule that limits the total portfolio heat you may be in danger of over-exposure. Therefore, if you diversify across uncorrelated or weakly correlated systems that capitalize on different market phenomena you have added another layer of protection.

All this probably wont make much sense unless you believe that the key to longevity is risk control above all else. Good luck.