Stochastic Overbought/Oversold Reversal

The strategy reacts to extreme levels of the Stochastic Oscillator. When the %K line dives into oversold territory the system expects a bounce, whereas overbought readings can foreshadow a drop. The method runs on short intraday candles so signals arrive quickly.

Testing indicates an average annual return of about 73%. It performs best in the crypto market.

After subscribing to the selected timeframe it monitors the %K and %D lines. A bullish setup forms when %K falls below 20 and then begins to recover. Conversely, a bearish setup appears if %K rallies above 80 and starts to turn down. A fixed percent stop controls risk for either side.

Positions are exited when the %K line crosses back through the 50 level, signaling momentum has shifted toward the opposite direction. Because stops scale with the latest ATR, the trade size adapts to volatility.

Details

• Entry Criteria:
  • Long: %K < 20 with a bullish turn.
  • Short: %K > 80 with a bearish turn.
• Long/Short: Both.
• Exit Criteria: %K crossing 50 or stop-loss.
• Stops: Yes, at 2% distance.
• Default Values:
  • StochPeriod = 14
  • KPeriod = 3
  • DPeriod = 3
  • CandleType = 5 minute
• Filters:
  • Category: Oscillator
  • Direction: Both
  • Indicators: Stochastic
  • Stops: Yes
  • Complexity: Basic
  • Timeframe: Intraday
  • Seasonality: No
  • Neural networks: No
  • Divergence: No
  • Risk level: Medium