This strategy measures the Stochastic oscillator against its own moving average to locate overextended swings. When %K moves several standard deviations away from its mean, the expectation is for the indicator to drift back toward typical values.
A long trade is placed when Stochastic %K falls below the lower band defined by the average minus
Multiplier times the standard deviation. A short trade occurs when %K exceeds the upper band. Positions are closed once %K crosses back through its average line.
The method is designed for short-term traders who like to trade overbought and oversold extremes. The stop-loss protects against sustained momentum that fails to mean revert.
- Entry Criteria:
- Long: %K < Avg - Multiplier * StdDev
- Short: %K > Avg + Multiplier * StdDev
- Long/Short: Both sides.
- Exit Criteria:
- Long: Exit when %K > Avg
- Short: Exit when %K < Avg
- Stops: Yes, percent stop-loss.
- Default Values:
- StochPeriod = 14
- KPeriod = 3
- DPeriod = 3
- AveragePeriod = 20
- Multiplier = 2.0m
- CandleType = TimeSpan.FromMinutes(5)
- Filters:
- Category: Mean Reversion
- Direction: Both
- Indicators: Stochastic Oscillator
- Stops: Yes
- Complexity: Intermediate
- Timeframe: Intraday
- Seasonality: No
- Neural networks: No
- Divergence: No
- Risk Level: Medium