The Modified double stochastic trading strategy is the very profitable trading strategy in the forex industry. Professional traders use higher to the time frame to trade the major pair with this strategy. This strategy tends to work best while traded with the trending pairs.
The major and minor swings prevailing in the trend can easily be identified by using the modified two stochastic indicators in any major pairs. Professional traders trade with enters into the market with the slow stochastic crossover. Let’s see how the professional traders trade the EURUSD by using the modified stochastic oscillators.
Figure: trading the EURUSD pair using the modified double stochastic trading strategy
In the above figure, trader used two modified stochastic oscillators to trade the 4-hour chart of EURUSD pair. The first stochastic k period D period and slowing value are changed to 9,3,3 and the second stochastic which triggers the trade has a changed value of k period D period and slowing value 21,9,5 respectively. In the above figure, traders look for bearish momentum in the first stochastic indicator near the key resistance level of the pair. Once the bearish momentum is established in the first stochastic indicator traders wait for patience for a bearish crossover in the second stochastic indicator. After the green line cross below the red line in the second stochastic, professional trader open their short trade.
Professional day trader uses the proviso high of the price as their stop loss level. However, some professional traders also use price action confirmation candlestick pattern which gives them a bit tighter stop loss and better risk-reward ratio. But price action confirmation signal is rarely spotted in this strategy since this strategy is based on the leading indicator. On the contrary, in the case of short trade, take profit level is set to the nearest key support level of the pair.