Stochastic: What’s it Really Showing You?

Ever heard the expression “getting ahead of the curve?” In trading, this cliche perfectly reflects what every trader wishes they could consistently do. In addition to fundamental analysis, you might turn to charts to forecast price moves. A big part of using charts to make sense of the markets are indicators, but are they really any good? Many traders turn to the Stochastic indicator to check overbought or oversold levels, so just what insights does Stochastic analysis really offer, and how can you use these insights to determine when to open a position?


Here’s an overview of this popular indicator, why you might be struggling to use it, and some top tips that will help you avoid misinterpreting market moves.

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Overbought and oversold

The terms overbought and oversold describe a period where there has been significant movement in price without much pullback or reversion. Simply put, a rise or fall that doesn’t deviate far from the trend line.

What goes up…! You know the saying. Price trends can’t last forever. They eventually reverse, and trading close to that point of reversal is one way you can maximize your profits. In traditional technical analysis, traders expect overbought or oversold currency pairs to reverse, but that’s not always the case and it can be quite an expensive realization. To constantly set your trades based on the Stochastic indicator will yield mixed and likely disappointing results.

How to read the Stochastic

If you’ve already signed up with Exness, then you have access to a trading platform and a risk-free demo account. This is the perfect way to get familiar with any of the free and paid indicators available. Open up your platform and go to the Navigator pane on the left. Scroll down and then drag the Stochastic folder to the chart. A section will appear below the price chart with two lines tracing along, above, and below a central range.

The concept is fairly simple. The lower horizontal line represents a value of 20. The upper horizontal line is 80. Whenever the tracing line breaches 80, it indicates a possible overbought status, and traders expect a price correction. Likewise, if the lines cross below the 20-mark, it signals a possible oversold status, and a reversal might be imminent.

In the above EURUSD example, a downtrend started on May 19 and crossed the 20-line on May 22 [yellow]. Traders using the Stochastic indicator would normally take this as a sign of overbought, and they would set a buy order with the expectations of a reversal. They would consequently be very pleased with the rise that followed. Just five days later, Stochastic indicated another oversold status [blue], but traders clicking the buy buttonprobably lost whatever profits they’d achieved the previous week. So, what’s going on?

Indicators are not fortune-tellers

FX News does not recommend using the Stochastic indicator as a stand-alone forecasting strategy. Indicators are best used to confirm theories, not to create them. Having said that, Stochastic is one of the best indicators a trader can use, but you might consider adding a little common sense to the mix. In the yellow example above, you can see that the price line and the Stochastic lines match rather well in the days preceding the oversold signal—and continue to do so after the fact. The perfect example of how a Stochastic indicator can forecast a reversal!

The blue example a few days later shows a clear divergence. The Stochastic line falls dramatically in a complete reversal from overbought to oversold, but the price line barely moves in comparison. Consider that a warning sign! Another common indicator is that the reversal usually comes when the rise or fall happens in a short period of time. Watch out for steep peaks and valleys that accompany the overbought/oversold range.

Top trading tips for advanced traders

Although we’ve used a price line to better illustrate the price moves in the chart image, FX News suggests using candlesticks when performing chart analysis. Moreover, Stochastic’s default %K period and slowing is set at 5,3,3, but cautious traders usually use higher numbers. On the top menu, go to Insert > Indicators > Oscillators > Stochastic Oscillator and set to 15,5,5. You can run both settings at the same time to see the differences. Certain settings may work better for certain pairs, so play around with the levels before committing to one.


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Do Forex Signals Really Work?

So, you’ve funded your trading account, and you’re ready to make some trades. Now it’s time to analyze the market and find some attractive trading options. Researching currency pairs can take a big chunk out of your free time, and it’s not uncommon to end your market investigation as lost as when you started. If that’s you, don’t despair. You’re not alone, which is why professional market analysts and A.I. programmers got together to create forex signals. But are those signals any good?

Why do traders use forex signals?

Technical indicators, news reports, fundamental analysis, who has time to analyze the dozens of trading instruments available on your trading platform? If your life is like mine, it’s hard to find time to properly research the market. But what if somebody or something could do all the research for us and then send a report with statistics and clear conclusions?

It’s so convenient. Forecasts that normally take hours to perform just appear in your inbox or MetaTrader message board in the form of a signals report, all thanks to a team of professional forex analysts working in concert with A.I. technology.

Traders of all levels and experience use signal provider services and their associated apps. While some forex signals services are free, others have a fee; there are hundreds, so choosing which one to go with takes time and investigation. Moreover, some work better than others.


Which forex signals providers can you trust?

This question is difficult to answer. Forex signals get constant updates and performance changes with each update. Signal performance and accuracy also varies from brand to brand. From as low as 60% up to an unconfirmed 92% win/loss ratio. One forex signal provider’s performance might be strong during the time of writing this article, but things can change in a matter of days. Keeping current with the top signal providers can take up as much time as keeping current with the forex market. Fortunately, there is a solution.

The easy way to choose a signal provider

To make sure you’re getting the latest forex signals, just stick to the more established and popular services. There’s a reason they are so popular! One signal provider worth considering in 2019 is the award-winning Trading Central. For almost 20 years, Trading Central has been supporting investment decisions for forex traders, and it is a consistent leader in the industry. Professional analysts monitor Trading Central’s tried and tested algorithms, and their performance and reputation is solid, which is why Exness gives free access to Trading Central signals directly on your trading platform.

Top tip: Some signal providers have had better performance percentages than Trading Central, but their consistency is lacking and not really worth mentioning. Try comparing multiple signal providers. Keep a diary of the signal forecasts then go back and check to see which ones gave better signals. If the majority of signal providers are saying the same, then you might be onto a sure thing.

As always, FX News recommends that you understand every order you make, and not blindly follow forex signals or forecasts. Find time to conduct your own market research and learn and grow as you go.

Try signals trading and see if it’s right for you!


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Want To Trade Forex Like An Expert? Control Your Risk

Want to step above the crowd? Knowing when to cut your losses and being consistent and disciplined about doing so can help you truly elevate your trading game.

Why Controlling Risk Is Key To Developing As A Trader

At first glance, this sounds rather obvious, doesn’t it? It may surprise you, but far too many traders lose more money than they can afford by sticking with bad trades in the hope that things will turn around for them. In reality, this rarely happens.

Smart traders, in contrast, set firm stopping points with their broker before ever opening their trades. If their losses drop below the level set, they understand that the best thing they can do is to walk away.  While this sounds easy enough to do, actually doing it consistently in real life can be quite hard. It’s basic human psychology to try to hold on to what we perceive as ours and to recoup losses. Fighting through that urge and learning to walk away will put you head and shoulders above many traders, however.

Top Tip: Planning Is Key

Have a plan about how and when to cut your losses and be disciplined and consistent about sticking to it. For example, determine what percentage of your equity can you afford to lose before making a trade and set a stop-loss order to ensure you don’t go beyond it.

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Trading Strategy: Forget Price, Try Trading Volume

Are you ignoring the volume bars at the bottom of your price chart? It’s not unusual. Loads of traders prefer to track prices or


s when choosing a currency pair. At first glance, volume doesn’t seem to be the most powerful indicator, but there’s more to trading volume than meets the eye.


The volume section of your trading platform shows the total lots of the selected currency pair being bought or sold. For example, whenever heavyweight investors start opening huge trading contracts, trading volume quickly rises. Moreover, if the world’s media channels suddenly popularize a particular currency pair, trading volume tends to rise shortly after as thousands of traders open orders. In other words, trading volume is—among other things—a popularity meter. But how is that useful to you?

Volume and leverage

Before we even think about placing an order, we should first consider how volume relates to leverage. “Why leverage?” you may ask. What could volume and leverage have in common? Leverage is an important choice when you first go through the signup process. With Exness, you can open and manage multiple trading accounts from one convenient Personal Area. Each account can have a different leverage setting, which is very useful if you wish to trade both high volatility and low volatility pairs. The rule of leverage is simple and will give your trading strategy a solid foundation. low trading volume = low liquidity = high volatility = lower leverage

high trading volume = high liquidity = low volatility = higher leverage

A highly volatile currency pair could create huge profits when combined with high leverage, but such fragile orders tend to ‘Stop Out’ underfunded trading accounts in minutes when massive price fluctuations occur. Not recommended! Instead, try comparing the trading volumes of your favorite pairs with the major and minor currencies. If your pair is experiencing lower volume, then you might want to use a trading account with a lower leverage setting. Checking the volume of your preferred currency pairs could save you a lot of disappointment.

Strong price vs high price

Volume can be used to measure the ‘strength’ of a price shift, which answers a common question every trader asks themselves on a daily basis. “Is this price shift a coming reversal or just another bump in the road?”

Let’s consider a currency in a long-term downtrend. One day, the price begins to rise. Is this a breakout in the making, or just another fluctuation? A change in trend depends on many factors, but the first place to start checking is the trading volume. If the trading volume is low at the time of a price increase, then the market move is probably just a hiccup and the downtrend will return with a vengeance.

On the other hand, if the volume has been higher than usual, then you might be seeing the early stages of a price reversal. In a nutshell, low volume direction changes don’t stick. There are always exceptions to every trading strategy, but spotting a weak reversal is a very strong indicator.

How to test the trading strategy

Try opening up your trading platform and targeting a currency pair on the Market Watch list. Look back over the last few weeks until you find a significant fall in the trading volume, then check what happened to the price shortly after. Match your leverage to the average volume, then wait for the next possible breakout. If the price is reversing and the volume is rising, then the pair could be an attractive trading opportunity that deserves investigation or investment.


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Quasimodo Pattern (Over and Under)

Quasimodo Pattern (Over and Under)


Easy guide to trading the Quasimodo Pattern

What is the Quasimodo (Over and Under) Pattern?


Easy guide to trading the Quasimodo Pattern

The Quasimodo Pattern or Over and Under pattern is a relatively new entrant to the field of technical analysis in the financial markets. Although new, the Quasimodo pattern is a commonly occurring theme that is more frequent when price carves a top or a bottom or when price begins a major correction to the trend.The Quasimodo Pattern, although complex as it might seem is actually very simple. This trading pattern is especially powerful because when it occurs, in most cases, traders will notice a confluence with other methods of analysis.For example, when a trader spots a Quasimodo pattern near a support or resistance level, it increases the confidence of the trader or the trading probability. Likewise, when trading divergences, when you spot a Quasimodo pattern, that confluence can be used to trade the divergence set up with more confidence.As we can see from the above, the Quasimodo pattern is not a trading strategy by itself but is more of a confluence pattern that can be used to confirm a trader’s bias. Of course, the Quasimodo pattern doesn’t appear all the time, but when it does, traders can be sure that the market offers a high probability trade set up.

What is the Quasimodo (Over and Under) Pattern?

A Quasimodo Pattern is simply a series of Highs/Lows and Higher or Lower highs or lows.

Quasimodo Short Signal Pattern

There should be a prior uptrend in the marketsPrice makes a new high, declines and makes a new local lowPrice then rallies above the previous high to mark a new higher highPrice then falls to form a new lower lowPrice then rises towards the initial high (but does not make a new higher high).

The fifth level in the set up is the trigger, where a short position is taken. Stops are set above the higher high and the take profit level is up to the trader.

Quasimodo Long Signal Pattern

There should be a prior downtrend in the marketsPrice makes new low then makes a small rally and forms a local highPrice then declines to form a new lower low taking out the previous lowPrice then rallies to make a new higher high and then declinesThe final decline is equal to the first low

The fifth leg in this pattern is the trigger for long positions with stops set to at or below the lower low

Quasimodo Long Signal Pattern Examples:

Quasimodo Long Example #1

Price is in a downtrendPrice then makes a new low at 99.923 and then makes a new local high at 100.274Price then declines and makes a new lower low at 99.983Price then rallies to make a new higher high at 100.38 and then declinesThe final leg in the decline is just a few pips above the previous low. This triggers a long signal

Here is another example of the Quasimodo Long example:

Quasimodo Long Example #2 Quasimodo Short Signal Pattern Examples:

Quasimodo Short Example #1

Price is in an uptrendPrice then makes a new high at 1.5251 and then declines to make a low at 1.5187Price then rallies to make a higher high at 1.5321 and then declinesA new lower low is posted at 1.5165Price then makes a modest rally and this high stalls a few pips close to/above the previous highA short entry is then taken with stops near the highest highThere is also an additional confirmation yet again with the RSI divergence as well

Another example of the Quasimodo Short pattern example is given below:

Quasimodo Short Example #2


As we can see from the above, the Quasimodo or Over and Under pattern is a relatively simple pattern, which when used in conjunction with other trading strategies or signals offers a great way to increase the probability of a trade set up.
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