In this video, Chris looks at one of the most common trading strategies available for range bound markets: the Stochastic Oscillator Crossover System. This system is a very old and basic one, and has been proven to be successful over the longer term. Simply put, the stochastic oscillator is placed on the bottom of the chart, showing either overbought or oversold conditions. The idea is that when a currency pair is overbought, you start selling, and when a currency pair is oversold, you start buying.
With this being said, you wait for the signal lines in the stochastic oscillator to cross in one of the overbought or oversold zones. The indicator itself has a range from 0 to 100, with the 0 to 20 level being oversold, and the 80-100 level meaning that the currency pair is overbought. You just simply count on the market going back and forth. Remember, currency pairs tend to consolidate for roughly 80% of the time. With that being the case, this is a very useful trading system.
You can often use moving averages to figure out what the overall momentum of the market is, and in this video Chris shows you how you can disqualify this system or use it is it makes a lot of sense. Remember, this is just another tool in your toolbox to use when navigating the Forex markets. Not all systems function in all conditions. This is what the moving average will do for you, as it shows the general attitude of the market.
This market can be used on short-term trades as well, but again you have to have a consolidation area. On top of that, you have to keep in mind that short-term charts tend to be quite a bit more volatile than daily or even weekly chart, so it does make it more difficult and dangerous to trade. At the end of the day though, you can use this system and either short or long-term trades.
Below is our video on the Stochastic Oscillator Crossover System: