Page 64 - NEW FOREX FULL COURSE

FOREX TRADING COURSE FOR BEGINNERS

BUY AND SELL SIGNALS
There are at least two popular ways traders use stochastic for buy and sell signals. A conservative
approach is to wait for both the %K and %D to come out of the shaded area to issue the signal.
For sell signals, a conservative trader waits for both lines to rise into the overbought zone and
then fall below 75 again. An opposite pattern is followed for a buy signal.

After both lines drop below 25, the buy signal is given when the stochastic lines climb above 25
again. This is a more conservative approach because you will be slower in taking a position, but
it may eliminate some false signals.

For more aggressive traders, the buy and sell signals on the stochastic charts are generated when
the two lines cross. For most traders the buy and sell signals are flashed when %K crosses %D, as
long as both lines have first gone into the overbought or oversold zones. This is similar to the buy
and sells signals of two moving averages.

Waiting for the stochastic lines to come out of the shaded area will sometimes prevent false -
signals. For example, If you, were watching for a buy signal on the stochastic chart for the NYSE
composite index during the August-September period, %K crossed the %D line in early August
and at least five more buy signals were given before the trend finally turned up in early October.
An aggressive trader who went with the first crossing of the lines would have been stopped out
at least a couple times before finally getting on board for a good move up. But the more
conservative trader would have been waiting for both lines to climb out of the oversold area
before buying, thus avoiding the whipsaw signals in August and September.

Oscillators are notoriously unreliable in signaling trades against the trend. For good stochastic
signals, you'll need to trade with the longer-term trend (Giant Footprints). Follow only the buy

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