The Stochastic Oscillator is a very popular Metatrader 4 indicator and often used in forex strategies and systems.
The indicator fluctuates between 0 and 100.
Value 0 is extremely oversold, value 100 is extremely overbought.
The indicator is very often used to trade overbought and oversold market conditions in trending markets.
It works best combined with a trend indicator, for example, moving averages, Bollinger Bands, ADMI,..
Stochastic works for scalpers, day traders, swing traders and position traders.
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Indicator Chart (EUR/USD H4)
The EUR/USD H4 chart below displays the Stochastic Oscillator forex indicator in action.
Basic Trading Signals
The signals from the Stochastic Oscillator are easy to interpret and goes as follows:
Buy Trade: Open buy order when Stochastic crosses back above 20 from below.
Sell Trade: Open sell order when Stochastic crosses back below 80 from above.
Exit Trade: For long trades, close near the 80 overbought level. For short trades, close near the 20 oversold level or use your own preferred exit method.
Tip: Use Stochastic together with a trend-following indicator and take trades only in the direction of the overall trend.
Bullish trend? Trade oversold signals near the 20 level, avoid sell signals.
Bearish trend? Trade overbought signals near the 80 level, avoid buy signals.
Stochastic Oscillator & LRMA Bollinger Bands Indicator Low Risk Forex Strategy for MT4
This MT4 low-risk strategy combines momentum signals from the Stochastic Oscillator Metatrader 4 Forex Indicator with trend direction from the LRMA Bollinger Bands Metatrader 4 Forex Indicator.
The Stochastic Oscillator generates entry signals when momentum changes: buy trades are triggered when the Stochastic crosses back above 20 from below, and sell trades are triggered when it crosses below 80 from above.
The LRMA Bollinger Bands provide trend confirmation, where rising bands indicate bullish conditions and falling bands indicate bearish conditions.
Using these indicators together helps traders take trades in the direction of the trend while reducing risk by entering near oversold or overbought conditions.
This strategy works best on M15, M30, and H1 charts, making it suitable for day traders who prefer conservative entries and tight risk control.
It is ideal for traders looking to minimize losses and capture steady intraday moves.
Buy Entry Rules
- Confirm the trend is bullish by ensuring the LRMA Bollinger Bands are rising.
- Wait for the Stochastic Oscillator to cross back above 20 from below.
- Enter a buy trade immediately when the Stochastic crosses 20 in alignment with the bullish trend.
- Place the stop loss below the most recent swing low or lower Bollinger Band.
- Close the trade when the Stochastic crosses back below 80 or the Bollinger Bands begin to fall.
Sell Entry Rules
- Confirm the trend is bearish by ensuring the LRMA Bollinger Bands are falling.
- Wait for the Stochastic Oscillator to cross back below 80 from above.
- Enter a sell trade immediately when the Stochastic crosses 80 in alignment with the bearish trend.
- Place the stop loss above the most recent swing high or upper Bollinger Band.
- Close the trade when the Stochastic crosses back above 20 or the Bollinger Bands start rising.
Advantages
- Combines trend and momentum for low-risk, high-probability entries.
- Clear Stochastic signals make entry timing straightforward.
- LRMA Bollinger Bands filter trades in the direction of the trend.
- Works on multiple timeframes: M15, M30, and H1.
- Reduces exposure to countertrend trades and sudden volatility spikes.
Drawbacks
- Signals may lag slightly in very fast-moving markets.
- Pullbacks can cause temporary false signals, requiring patience and discipline.
- Requires active monitoring to avoid missing Stochastic crossovers.
- Stop losses may be hit if tthe rend reverses sharply against the trade.
Case Study 1
On EURCHF M15 during the London session, the LRMA Bollinger Bands were rising, confirming a bullish trend.
The Stochastic crossed back above 20, signaling a buy.
A trade was entered with a stop loss below the recent swing low.
Price moved upward steadily, and the trade was closed when the Stochastic crossed back below 80, netting 26 pips.
Case Study 2
On GBPAUD M30 during the New York session, the LRMA Bollinger Bands were falling, indicating a bearish trend.
The Stochastic crossed below 80, signaling a sell.
A sell trade was entered with a stop loss above the recent swing high.
Price declined steadily, and the trade was closed when the Stochastic crossed above 20, capturing 49 pips.
Case Study 3
On AUDUSD H1 during the London session, the LRMA Bollinger Bands were rising.
The Stochastic crossed back above 20, generating a buy signal.
A trade was executed with a stop loss below the most recent swing low.
Price moved upward, and the trade was closed when the Stochastic crossed below 80, netting 51 pips.
Strategy Tips
- Focus on entering trades near the lower or upper edges of the Bollinger Bands to improve risk-reward on pullbacks.
- Wait for Stochastic crossovers to fully complete rather than entering prematurely to avoid false signals.
- Use multiple timeframes to confirm the trend before entering; for example, check H1 trend before taking M15 or M30 trades.
- Trade only the strongest trending pairs highlighted by the Symbol Movement or other volatility indicators for better consistency.
- Consider partial exits at key Fibonacci or pivot levels to lock in profits while leaving part of the position to run with the trend.
- Avoid entering trades immediately after large news events; wait for the market to stabilize before taking signals.
- Combine this strategy with strict money management rules to keep losses small and protect capital during choppy conditions.
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Download the “Stochastic.mq4” MT4 indicator
MT4 Indicator Characteristics
Currency pairs: Any
Platform: Metatrader 4
Type: chart pattern indicator
Customization options: Variable (K Period, D Period, Slowing) Colors, width & Style.
Time frames: 1-Minute, 5-Minutes, 15-Minutes, 30-Minutes, 1-Hour, 4-Hours, 1-Day, 1-Week, 1-Month
Type: Oscillator
