The Stochastic indicator is one of the most used andABUSED indicator.Why?Because most traders don’t understand how it works.You blindly go short when it’s overbought and go long when it’s oversold. And you wonder why your trading account is bleeding consistently.But don’t worry.Because in this video, I’ll teach you how to use the Stochastic indicator the correct way.You’ll learn:.What is the Stochastic indicator and how does it work?
Method This is simple stuff but with the stop at swing high or low we have a good support or resistance.also we only want an average move in our direction. Like all my systems identify the main direction and enter on a retracement If CCI above zero we look for long CCI below zero we look for short. Just go ahead that Fibonacci Retracement is a favorite analysis tool for traders, number accuracy Fibonacci in forex analysis is quite famous. According to Fibonacci scientists is 'God's Numbers' because this Fibonacci number combination can be found in nature even exists in every inch the proportion of the ideal human body. Structure) line up with the 'sweet spot' of a Fibonacci retracement, and at the same time, the RSI is showing oversold or overbought conditions. Then use price action signals to laser target your entry. What you need: - A Fibonacci retracement tool with the 127.2 and 161.8 levels - A stochastic indicator/oscillator (5,3,3).
Table of Contents.Fibonacci Trading PersonasBefore we go into the gritty details about Fibonacci trading strategies, check out three Fibonacci trading personas and their strategies. While fictitious, they do an awesome job of summarizing common trading practices.If you would like to read about the technicals of Fibonacci trading feel free to skip down to our table of contents below.But if I can entertain you for just one second, I think it's important to think through which persona best fits. Which Persona Best Describes YouI want you to ask yourself the question of how you plan on leveraging Fibonacci in your trading regimen? If you haven't done so already, think about writing a trading plan for you to review before, during and after the market closes.I can fluctuate between the low and Fibonacci trader depending on what the market is offering.
However, as of summer 2018, I find myself gravitating towards the low volatility persona. For me, I like to monitor my trade setup and add to positions as they go in my favor.Fibonacci assists me in seeing these hidden levels of support and resistance to help me determine my entry and exit targets.
Chapter 1: Origin of the Fibonacci SequenceDoes this numbering scheme mean anything to you - 0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, 233, 377? Not really, right?Well, you are in the right place if it doesn't. These numbers are the root of one of the most important techniques for.Behold the mighty Fibonacci ratios!Hundreds of years ago, an Italian mathematician named Fibonacci described a very important correlation between numbers and nature.
He introduced a number sequence starting with two numbers - 0 and 1.Have a look below, as we build a Fibonacci sequence.Again, we start with 0 and 1.0, 1The sequence requires you to add the last two numbers to get the next number in the sequence. Following this logic, we get the following equation. 0 + 1 = 1Now we have our third number in the sequence - 1. See below for the updated sequence.0, 1, 1Now we add the last number in the sequence to the previous number once again:1 + 1 = 2We again update our sequence with the number 2.0, 1, 1, 2and then.1 + 2 = 3and then.0, 1, 1, 2, 3and then.0, 1, 1, 2, 3, 5and then.0, 1, 1, 2, 3, 5, 8and then.0, 1, 1, 2, 3, 5, 8, 13This process goes on to infinity.
Best Stochastic Indicator
Chapter 2: Key Fibonacci RatiosFibonacci discovered every number in the sequence is approximately 61.8% of the next number in the sequence.55 / 89 = 0.898876 = 61.8%233 / 377 = 0.785146 = 61.8%144 / 233 = 0.729614 = 61.8%This is not the only correlation. Fibonacci also uncovered that every number in the sequence is approximately 38.2% of the Fibonacci number two steps ahead.( 13, 21, 34)13 / 34 = 0.764706 = 38.2%( 21, 34, 55)21 / 55 = 0.181818 = 38.2%( 55, 89, 144)55 / 144 = 0.444444 = 38.2%( 144, 233, 377)144 / 377 = 0.214854 = 38.2%Also, we have another ratio! Every number in the Fibonacci sequence is 23.6% of the number after the next two numbers in the sequence:( 55, 89, 144, 233)55 / 233 = 0.459227 = 23.6% Chapter 3: Fibonacci Ratios EverywhereFibonacci Sea ShellThe volume of each part of the shell matches exactly the Fibonacci numbers sequence. Thus, each part of this shell is 61.8% of the next. It works the same way with this aloe flower. The Fibonacci ratio is constantly right in front of us and we are subliminally used to it.
Thus, the human eye considers objects based on the Fibonacci ratio as beautiful and attractive.Also, big corporations like Apple and Toyota have built their logos based on the Fibonacci ratio. After all, these are two of the most attractive and engaging logos in the world. Chapter 4: Fibonacci Ratios in TradingTrading with Fibonacci isn't complicated.A logical method for entering a trade is when the.Well, where would you think to?Without knowing anything about Fibonacci trading, you would likely say 50%.That my friend makes you a Fibonacci trader.That's what Fibonacci trading is about, understanding stocks do not move in a linear fashion. Fibonacci helps new traders understand that stocks move in waves and the smaller the retracement, the stronger the trend.Now, it's time to take you to the level of an intermediate Fibonacci trader. To do this, you need to know the other two critical levels - 38.2% and 61.8% retracement.Price action must be analyzed at these levels to understand if the countertrend move will stop and the trend will resume.Fibonacci retracement levels are used by many retail and floor traders, therefore whether you trade using them or not, you should at least be aware of their existence.Some advanced traders will take it a step further and add and to their trading arsenal in search of an edge.In full disclosure, I do not use these advanced techniques. The chart becomes too cluttered for me and I get lost in all the lines.
Chapter 5: How to Interpret Fibonacci Levels Defining the Primary Trend Strong UptrendDefining the primary trend with Fibonacci requires you to measure each pullback of the security. If you see a series of new highs with retracements of 50% or less, you are in a strong uptrend. Choppy MarketDo you see how each pullback is greater than 78.6%? This level of retracement repeatedly produces a choppy pattern. Therefore, you would not want to have lofty while the stock is in a tight trading range.78.6% is not a hard-fast rule.
If you see retracements of 61.8% or 100%, the stock is likely in a basing phase before the next move.That's it, you now understand how to use Fibonacci to define the strength in the market.Remember, the market is either trending or flat.A general rule of thumb for the overall market is it trends 20% of the time and is range bound the other 80%. The chart above looks so clean and safe. The reality is that you will likely have a 40%-70% hit rate depending on your ability to honor your rules and.Therefore, you need to prepare for when things go wrong.
In a pullback trade, the likely issue will be the stock will not stop where you expect it to. It may pullback to a full 100% retracement, or it could even go negative on the date.I have had situations trading the where a stock will have a 15% or greater swing from the morning highs.You can protect yourself from this scenario by doing the following: Trade Low Volatility StocksPenny stocks look great when a trader is discussing their 30% gain in one hour. However, it's brutal if you are on the other side of the trade. Trade stocks with high volume and some volatility because, but don't feel like you must trade with the other gunslingers. Max Time LossI am always preaching this to anyone that will listen. Look back over your winning trades and determine how long it takes you to turn a profit with 85% confidence.If that is 5 minutes or one hour, this now becomes your time stop.
If there is only a 15% chance you will walk away a winner, just exit the trade with a predetermined allowable loss percentage or right at market. Max Stop LossThere is no way around it,. I do not care how good you are, at some point the market will bite you. To this point, have a max stop loss figure in mind.For me, it is 10%, but since I only use a small portion of my account size, this keeps me under a total portfolio loss of 2%. Since I trade lower volatility stocks, this may occur only once or twice a year.The point is you need to be prepared for the inevitable. #2 - Breakout Tradeshave one of the highest failure rates in trading. I'm going to give you a few things you can do to up the chances of things working out.
Clearing Fibonacci Extension LevelsIt's not enough to just buy the breakout.Therefore, you want to make sure as the stock is approaching the breakout level, it has not retraced more than 38.2% of the prior swing. This will increase the odds the stock is set to go higher. Where Can Things Go WrongIn terms of where things can go wrong, it's the same as we mentioned for pullback trades. The one difference is you are exposed to more risk because the stock could have a deeper retracement since you are buying at the peak or selling at the low.So, to mitigate this risk, you will need to use the same mitigation tactics as mentioned for pullback trades. #3 Trading with Indicators.
Fibonacci MACDThis is the 60-minute chart of Yahoo for the period Sep 25 through Nov 3, 2015.The two green circles on the chart highlight the moments when the price bounces from the 23.6% and 38.2% Fibonacci levels.At the same time, the green circles on the MACD show a cross up of the indicator.Thus, we go long every time we match a price bounce with a bullish MACD crossover.The red circles show the close signals we receive from the MACD.We open two long positions with Yahoo and we generate a profit of $5.12 per share. Fibonacci Retracement + Stochastic Oscillator + Bill Williams AlligatorIn this Fibonacci trading system, we will try to match bounces of the price with. When we get these two signals, we will open positions.If the price starts trending in our favor, we stay in the market if the and its lines are far from each other. When the alligator lines overlap, the alligator falls asleep and we exit our position. This is exactly what we need when the price hits 61.8% and we go long! A few hours later, the price starts moving in our favor.
At the same time, the alligator begins eating!We hold our position until the alligator stops eating. This happens in the red circle on the chart and we exit our long position. This trade brought us a total profit of $2.22 per share. Fibonacci and VolumeI saved this one for last because it's my favorite go-to with Fibonacci. Volume is honestly the one technical indicator even fundamentalist are aware of. Fibonacci and VolumeI mention this a little later in the article when it comes to trading during lunch, but this method works really during any time of the day.As a trader when you see the price coming into a Fibonacci support area the biggest clue you can look to is the volume to see if that support will hold. Notice how in the above chart the stock had a number of spikes higher in volume on the move up, but the pullback to support at the 61.8% retracement saw volume plummet.This does not mean people are not interested in the stock, it means that there are fewer sellers pushing the price lower.This is where longs come in and accumulate shares in anticipation for the rally higher.
Chapter 7: Advanced Fibonacci Trading Topics Fibonacci Speed Resistance ArcsFibonacci Arcs are used to analyze the speed and strength of reversals or corrective movements. To install arcs on your chart you measure the bottom and the top of the trend with the arcs tool.The arcs appear as half circles under your trend, which are the levels of the arc's distance from the top of the trend with 23.6%, 38.2%, 50.0%, and 61.8% respectively.Each of the Fibonacci arcs is a psychological level where the price might find support or resistance.This is the 30-minute chart of Apple for the period Oct 26 through Nov 3, 2015.I have placed Fibonacci arcs on a bullish trend of Apple. The arc we are interested in is portrayed 38.2% distance from the highest point of the trend.As you see, when the price starts a reversal, it goes all the way to the 38.2% arc, where it finds support. This is the moment where we should go long.Lastly, I recommend placing a stop right below the bottom created on the arc. Fibonacci Time ZonesFibonacci time zones are based on the length of time a move should take to complete, before a change in trend. You need to pick a recent as your starting point and the indicator will plot out the additional points based on the Fibonacci series.Notice, in this case, Apple’s price undertakes a move based on Fibonacci numbers 0, 1, 2, 3, 5, and 8.Do you remember when we said that Fibonacci ratios also?
This also applies to time as well. Negatives of Trading with Fibonacci Increased ExpectationsThe main rub I have with Fibonacci trading is you begin to expect certain things to happen. For example, if you see an extension as the price target, you can become so locked on that figure you are unable to close the trade waiting for bigger profits.If you are trading pullbacks, you may expect things to bounce only for the stock to head much lower without looking back.Therefore, if you are trading with Fibonacci at the, expect things not to work out about 40% of the time.Take that in for a second. That is quite a bit of times where you will be wrong.
This means it is absolutely critical you use proper money management techniques to ensure you protect your capital when things go wrong. Closing Too SoonThe other scenario is where you set your profit target at the next Fibonacci level up, only to see the stock explode right through this resistance. Thus, resulting in you leaving profits on the table. Leaving it on the Table What Are We to Do?Fibonacci will not solve your trading woes.
Again, you can hope to be right 60% to 70% of the time. This is not only when you enter bad trades, but also exiting too soon.So, what are we to do?The answer is to keep placing trades and collecting your data for each trade. You will have to accept the fact you will not win on every single trade. Trading During LunchTalk to any day trader and they will tell you to master.The reason lunchtime trading is so challenging is that stocks tend to float about with no rhyme or reason. I have seen stocks have 2 to 3 percent range bars with only a few thousand shares traded.So, how can you profit during the time when others like to get lunch? Simple answer - Fibonacci levels.What I like to see in a middle of the day setup is a pullback to a key Fibonacci support level. For me, that level is 78.6%.Again, the reason I like such a deep retracement is if I'm wrong the stock doesn't have as far to fall.
However, everyone isn't as pessimistic as me, you can go with 50% or 61.8%. Fibonacci Lunch Time TradingThe above chart is of the stock GEVO. Notice how the and then formed a nice base at the 50% retracement level. Now at this point of the day, you want to see two things happen: (1) volume drop to almost anemic levels and (2) price stabilize at the Fibonacci level.The combination of these two things almost guarantees volatility also will hit lower levels. You want to see the volatility drop, so in the event you are wrong, the stock will not go against you too much.So, naturally, the question is how do you manage the trade.First, you want to see the stock base for at least one hour. Then you want to see higher lows in the tight range. In the GEVO example, you want to place your buy order above the range with a.Curious to see what happened?
400 Percent in One DayNow let me say this may happen once in every 20,000 charts. So, please do not say Al is pushing lunch breakouts that can run 400%.I'm just giving you a real-life example that shows the power of Fibonacci levels providing support during the middle of the day.Now, remember, you have to exercise extreme caution with the middle of the day trading.Not so much from the perspective of the market going against you, as you can see you have tight stops.It's more around the fact these setups fail a lot.So, again, keep tight stops and always have realistic expectations.