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