Step #1: Identify a strong trading market that has a clear bullish trend
The first step is to identify a strong trading market that has a clear bullish trend.
Our team at Trading Strategy Guides has discovered that you can benefit more by using the stochastic indicator to trade pullbacks rather than trying to pick a falling knife or to jump in front of a train.
Consequently, you want to find a strong trading market'
Step #2: The Stochastic indicator needs to develop a double bottom pattern. The second bottom has to be higher than the first bottom.
It’s critical to make the difference between the double bottom price pattern and the fact that we’re looking at the stochastic indicator to develop a double bottom.
The other condition is that we need the second stochastic swing low to be higher than the first bottom.
Step #3: Both stochastic swing lows need to be in oversold territory below the 20 level
A stochastic reading below the 20 level suggests that the market is oversold and there is a high chance of reversal.
Many times a market can remain in oversold or overbought territory longer than you can remain solvent which is the reason why we have put in place the other trading rules so we can avoid this situation.
Step #4: Look for divergence to develop between the stochastic indicator and the market price
Before we go any further than this, we need to clarify one thing.
The way people trade divergence is by using a variety of momentum based indicators and measure or compare when the momentum indicator and the price diverge.
In other words, when the price makes a lower low but the momentum indicator fail to make a lower low and instead makes a higher low then we have a situation where we have divergence.
So, what type of divergence we want to see?
In plain English, we look for the price not to drop that much compared with the stochastic indicator. Notice how the stochastic indicator is falling very fast into oversold territory, but the EUR/USD exchange rate is dropping at a much slower pace.
Note* the stronger the divergence between the stochastic indicator and the price the better the buy signal can be.
Step #5: How to trade stair strategy: Buy after the second bottom develops a stochastic crossover
The trigger for our entry is quite simple.
Once the second bottom produces a stochastic crossover, we jump straight into the market and start buying so we won’t miss a great entry opportunity. In this scenario, our entry is as close as possible to the end point of the retracement.
Step #6: Place the protective stop loss below the last swing low. Take Profit when the slow stochastic moving average enters in overbought territory above 80 levels.
Place your protective stop loss 10 pips below the last swing low. We’re adding a buffer of 10 pips to protect ourselves in case of any false breakouts.
Usually, our stop will be very close to our entry price which is the reason why this swing trading strategy is such a great entry technique to keep your losses small.
You really can use any type of exit strategy as you wish
Where to take profit is also quite intuitive using the stair step chart pattern.
Once the stochastic slow moving averages enter overbought territory or when it touches the 80 level, we want to cash out. Alternatively, if you’re going to try to stay longer in the trend you can try our 10-day breakout strategy.
Note** the above was an example of a BUY trade using the stepping stones strategy. Use the same rules for a SELL trade – but in reverse.
PM me if you want to read the complete strategy.
The first step is to identify a strong trading market that has a clear bullish trend.
Our team at Trading Strategy Guides has discovered that you can benefit more by using the stochastic indicator to trade pullbacks rather than trying to pick a falling knife or to jump in front of a train.
Consequently, you want to find a strong trading market'
Step #2: The Stochastic indicator needs to develop a double bottom pattern. The second bottom has to be higher than the first bottom.
It’s critical to make the difference between the double bottom price pattern and the fact that we’re looking at the stochastic indicator to develop a double bottom.
The other condition is that we need the second stochastic swing low to be higher than the first bottom.
Step #3: Both stochastic swing lows need to be in oversold territory below the 20 level
A stochastic reading below the 20 level suggests that the market is oversold and there is a high chance of reversal.
Many times a market can remain in oversold or overbought territory longer than you can remain solvent which is the reason why we have put in place the other trading rules so we can avoid this situation.
Step #4: Look for divergence to develop between the stochastic indicator and the market price
Before we go any further than this, we need to clarify one thing.
The way people trade divergence is by using a variety of momentum based indicators and measure or compare when the momentum indicator and the price diverge.
In other words, when the price makes a lower low but the momentum indicator fail to make a lower low and instead makes a higher low then we have a situation where we have divergence.
So, what type of divergence we want to see?
In plain English, we look for the price not to drop that much compared with the stochastic indicator. Notice how the stochastic indicator is falling very fast into oversold territory, but the EUR/USD exchange rate is dropping at a much slower pace.
Note* the stronger the divergence between the stochastic indicator and the price the better the buy signal can be.
Step #5: How to trade stair strategy: Buy after the second bottom develops a stochastic crossover
The trigger for our entry is quite simple.
Once the second bottom produces a stochastic crossover, we jump straight into the market and start buying so we won’t miss a great entry opportunity. In this scenario, our entry is as close as possible to the end point of the retracement.
Step #6: Place the protective stop loss below the last swing low. Take Profit when the slow stochastic moving average enters in overbought territory above 80 levels.
Place your protective stop loss 10 pips below the last swing low. We’re adding a buffer of 10 pips to protect ourselves in case of any false breakouts.
Usually, our stop will be very close to our entry price which is the reason why this swing trading strategy is such a great entry technique to keep your losses small.
You really can use any type of exit strategy as you wish
Where to take profit is also quite intuitive using the stair step chart pattern.
Once the stochastic slow moving averages enter overbought territory or when it touches the 80 level, we want to cash out. Alternatively, if you’re going to try to stay longer in the trend you can try our 10-day breakout strategy.
Note** the above was an example of a BUY trade using the stepping stones strategy. Use the same rules for a SELL trade – but in reverse.
PM me if you want to read the complete strategy.
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Our free Telegram channel: t.me/TradingStrategyGuides