Optimizing Stochastics Settings for Forex and Futures Trading

Stochastics is a popular classic indicator used by many traders today.  However, it seems that very few traders understand a really useful method of applying Stochastics and understand its limitations.  The Stochastics indicator was developed by George Lane in the 1950's.   At that time traders simply did not have the ease of access to technical analysis tools that we have today.  Only mathematicians and engineers were involved in technical analysis and the use of indicators and they had to use the indicator formulas to plot the graphs onto paper.  Today anyone can buy an inexpensive computer and within minutes be using extremely advanced free charting software.  With the click of a mouse indicators such as Stochastics will appear on your chart without you needing to understand the formulas behind it nor the history of its development.

Stochastics is an oscillator type of indicator meaning that it moves up and down between two extreme zones which are often labeled the "overbought" and "oversold" zones.   Many traders who are eager to learn to master the art of trading quickly begin adding indicators to their charts without really understanding a purpose for using the indicator and when they try to use it they discover that it does not work for them so they then quickly abandon the indicator concluding that it just doesn't work.  A little patience and observation will enable you to discover how to use an indicator to develop a profitable Forex trading system.

One of the first steps in understanding the use of Stochastics is being able to optimize the settings.  The key to optimizing the settings as demonstrated in the above video is to first know what it is that you would like to see from this indicator and how you plan to use it.  Then you will see that there is no general purpose setting that is intended for all currency pairs or commodity futures.  The settings will vary from one to the next and also will vary between different time frames.   Technical analysis is never an exact science because financial markets are really more organic like a living being such as a plant. Once you learn this fact and stop trying to look at markets as if they are mechanical, you will gain tremendous insight into how to profit from your forex trading business.

Forex Technical Analysis