Multiple Time Frame (MTF) Stochastic. Using stochastic on different timeframes or 20 pips per day
The system you are about to learn in this article was proposed in the ForexFactory forum by the author Spudfyre and has received good reviews. This system uses only one indicator - stochastic with standard parameters 5, 3, 3. However, the price movement is considered both in a narrow perspective (minute charts) and in a broad perspective (hourly and daily charts).
The profound philosophy of working by MTF Stochastic - Using a strong movement that is already present in the market, rather than finding a pivot point. To illustrate this method, I would like to quote a famous trader, Jason Alan Jankowski. In his book "Trading Rules That Work" he stated literally the following thought:
"As most traders know, there are now literally innumerable ways to interpret price behavior, choose points to open positions or represent general market sentiment and price behavior...
...The point of your work is to develop a way of thinking that uses prices, not reacts to them..."
This system with using the same stochastics on four timeframes just fits this idea. The author of the system does not seek to earn hundreds of points of movement on it, although it is possible. The main task in the work is to gain 20 pips per day.
Description of work on the system
Only one pair is taken for work. In the author's case it is GBP/JPY. Although you can use the method on any sufficiently volatile pair with a democratic spread.
Purpose of work - 20 pips of profit per day. Above the norm, points are transferred to a "pip bank", which can be used during unsuccessful trades to compensate for losses and adhere to the weekly, monthly, etc. plan.
Stochastic parameters are standard: 5, 3, 3.
Overbought/oversold levels: 80, 20.
Used timeframes: M15, M30, H1, H4, D1, W1.
Entry Rules
Consider the entry to buy, for sales application mirror. Entering the market is carried out by the trend on H4. It is good if the trend on H4 coincides with the daily and (or) weekly trend. It gives an additional confirmation of the signal. It is fundamental that the stochastic on H4 only comes out of oversold, i.e. above 20 and in the growth stage.
Next, under the condition of a trend on H4, we look at the H1 chart. On it the same conditions should be observed - an exit from the oversold zone above 20 and growth.
These are the main conditions for upward trend: Н4 и Н1 выходят из перепроданности и растут. Причем пересечение стохастика со своей сигнальной линией во всех случаях игнорируется. Важно само направление линии – то, как линия стохастика ведет сигнальную линию.
The impetus for action, i.e. to open a long positionThe reversal of the stochastics on M15 and M30 is up. And they should be below the level of 50, for a confident entry, with a margin.
Exit rules
Since the system assumes taking profits from the existing movement, rather than a reversal of the price, the outputs can be of the following types:
1) exiting the market when the preset goal in pips is reached (for the author it is 7, 14, 20 pips);
2) exit in the presence of stochastic reversal on one or more timeframes;
3) exit upon reaching stochastic M15 level of 80 or when the stochastics of M30 and/or H1 reach the same level.
The author suggests not to use the H4 stochastic's reaching the oversold level as an exit from the market. It is logical, because the indicator is often stuck in the overbought/oversold zones, and the finding of stochastics The H4 in the oversold zone only confirms the uptrend on which you can continue to use the entry signals of this system.
Graphically, the location of the stochastics, even without the price, is always the same (see Fig. 1). Shown here is downward entry. Positions on the rise are opened at the mirror position of stochastics.