Stochastic is an important indicator used to judge overbought and oversold condition. Stochastic indicator is used with different settings to determine reversal. Stochastic is a range bound indicator that identifies overbought and oversold levels with different levels.
Best Stochastic settings:
The default period of Stochastic is the 14 period. It is known as 14,3,3. The complete oversold and overbought levels are best identified as Full Stochastic Oscillator (20,5,5).
A bullish divergence is identified when price makes a lower low, but the Stochastic Oscillator forms a higher low. When price makes lower high, but the Stochastic Oscillator forms a higher high it is known as the bearish divergence.
Stochastic Trade Setups That I Use:
The colorful stochastic is the best indicator used with metatrader to identify Overbought and oversold levels.
Rules to Trade:
When stochastic is red and below 20 and it makes green sign when the candle closes in any time frame. Go for Buy.
When stochastic is green and above 80 and it makes red sign when candle closes in any time frame for Sell.