Optimizing System Return

Slow Stochastic is one of the most popular indicators or studies that is used when trading forex. To optimize return, change your lot sizes and the entry of LONG or SHORT based on this indicator.

Stochastic Slow – “Momentum will always change before price and this indicator shows that.” Stochastics is a momentum oscillator that does not follow price, it does not follow volume or anything like that. It follows the speed or the momentum of price. As a rule, the momentum changes direction before price.  Price in comparison to a rocket speeding away from the Earth. Before the rocket can turn and head back to the ground again, it must first start to slow down. The slowdown of momentum happens before the change of direction always. That is what stochastics, do it’s a leading indicator to the change in direction and helps predict the direction of movement.

In simple terms, George Lane’s stochastic oscillator measures the current currency price compared to its historical moving average price for a given time period. This study is one of the most commonly followed indicators in the FX market. It measures the degree by which a currency is overbought or oversold. The scale for the indicator is 0 to 100. Readings above 80 indicate overbought conditions and reflect the fact that the currency is strong, and the price is closing near the high of the trading range. Readings below 20 indicate oversold conditions and reflect the fact that the currency is weak and is closing near the low of the trading range.

Trade Signal: Is when the two lines cross over 80 or under 20, which is best identifiable with daily and weekly charts for trend reversal. There must be a clear break out, and the further the distance between current price and moving average price, the greater the momentum. Stochastics are most useful in measuring the strength of a trend or as a coming reversal in prices. Many traders find that the best trading opportunity comes when their stochastic indicator is flattening out or moving in the opposite direction of prices. When these divergences occur, it’s time to book profits and/or to establish a position in the opposite direction of the prior trend.

Bearish or Sell Signal

Bullish or Buy Signal

To Insert the Slow Stochastic Indicator, follow instructions below.

Click on Insert top left corner of platform than go to Indicators and look for Stochastic Oscillator click on it. Than this pop up appears and change settings to 5,5,5

Change parameters to 5, 5, 5, pks

 

Slow Stoc’s once loaded will be found at the bottom of your chart on the MT4. It is made up of two lines (blue) current market price vs. Red dotted the 5-day moving average price. Trade Signal is when the faster moving blue line is above 80 and crosses over the slower moving average Red line. When the lines cross above 80 the pair is considered overbought and should place downside pressure on pair indicating sell signal. When the lines cross or rollover heading south it’s time to turn on system since the system is most accurate on the sell side your position will be on short side. A normal round trip of this indicator will usually take about 20 hours so it will trade down for session. This will increase your returns while decreasing your risk and can be done on every pair traded individually.   Take a look at chart below on bottom for a visual of a bearish signal or sell signal circled:

 

Conversely when the lines cross and are heading north its best to turn off pair once it has triggered profit but don’t do it unless current position is profitable. You do not need to close open positions but do not add to new entry. In other words since the system shorts only and your best returns will be on short side it makes trading sense to just try and manage short side trade entries for a maximum return. With or without this short side management it will still show a high percentage of winning trades and we believe that only investors that are computer literate should attempt to use this signal. 

In Conclusion:  Maximize returns if you trust your trade signals and are a seasoned trader you can gear as high at 20:1 equity or 2.0 lots with notional value of $200,000 = 200 times of $10,000 account value. When this happens of course your risk is higher but increases return 20-fold. When stochastics crossover and head north gear down after next target trigger to your normal lot or trade size.  You can also increase your return and not risk by setting the Long & Short to Only Long or Short.

By doing this correctly if your see a LONG signal and gear up the system will only enter the market on a buy signal. This means if your correct on your signal it will pay you 20 times on reward and if your wrong it will not enter market because the system trade signal will only trigger based on the pivot of 10-day simple moving average. If your signal sells sell set to Short ONLY and will only enter on short side of market. By doing this your increasing your return and we believe not necessarily increase your risk because it will only trigger if your interpretation of signal was correct. If have any questions email us.

Leonard D. Neuhaus, Jr.   Qualifications: Started on Wall St. 1984 and has been trading for over 15 years in forex market. Designed or developed his own trading system Multi30 which is now available and being offered to students of his University. Have been on numerous seminars around the world and has taught hundreds of traders successfully. Has past all these test at one time or another during his career: Series 7, 6, 63, 34, 3, life, ethics and code. With these test he is now passing on this knowledge to help students better understand the different trading strategies and markets to help them prosper with their own financial life endeavors.