top of page

Stochastic forex indicator

Forex indicators Stochastic measures closing price of candle on an instrument and compares it to price range of candle in predetermined period. Its goal is to find price retracement which can be a good entry opportunity. This useful tool of technical analysis, was developed by G.Lane and today belongs to one of the most popular forex oscillators (among RSI and CCI).

Stochastic forex indicator

By default, 5,3,3 is the period mostly used in calculation, however calculation period can be adjusted according to forex chartist needs and time frame he is looking at.

For the best results, trade with professional ECN/STP broker with MT4. If you can't trade with profit. Automatically copy the traders that are already profitable.

Anatomy of Stochastic forex indicator

Two lines are drawn in indicator window. %K line and more important %D line.

  1. %K = 100[(Cl – Low5close)/(High5 – Low5)]

  2. %D = 100 X (High3/Low3)

  • Cl –Last close price

  • High5- high of five previous closed candles

  • Low5 –low of five previous closed candles

  • High3 - high of three previous closed candles

  • Low3- low of three previous closed candles

In today world there is no need to perform those calculations manually. Proficient trader wishing to use stochastic in his forex trading, should however know stochastics inner workings.

Using the Stochastic indicator

D line is lagging after K line. First sign of price retracement is therefore signalised by changes in K line. Specifically, readings above 70 are overbought, readings under 30 are oversold. Same as with other forex oscillators.

Stochastic forex indicator

Indicator readings are considered valid, once both K and D lines leave the overbought oversold zones. Stochastic works better in team with other indicators (Moving average, Bollinger bands), or with other tools of technical analysis such as chart or candle patterns.

Stochastic with slower period (21,14,2 and above) can be used to determine trend. Readings above central (50) line are signalising uptrend, while reading below signalise downtrend.

Stochastic forex indicator

Stochastic is also a sensitive entry tool. By considering both K and D line we can avoid a lot of fake signals. It is also important to wait for them to return from 70/20 zone for signal confirmation.

Two stochastic can be also used in tandem. With slower identifying and confirming trend, while faster determines good price for entry. Once we use Stochastic to determine trend and entry, it is easier to confirm both information by chart analysis (Candle patterns for entry, trendlines drawing for trend).

Stochastic forex strategy



“Trading FOREX since 2006. Full time trader and web developer since 2013. My two biggest hobbies are trading and web development. In TheForexKings I managed to connect both of them. Even after 12 years of trading I still have the same passion for the market as at the beginning. The aspect I enjoy the most : development and testing of new ideas.” 


Only in 2016 - 2017 we have created more than 400 forex strategies. During this period we have also developed and published +200 MT4 Expert advisors based on those strategies. We are dedicated to provide you with viable and complete trading systems that have thrived in extensive historical testing. We want to give you complete and transparent trading solutions, that once mastered ,will set you financially free. We want to give you a fighting and winning chance in the market. ” 

—  Marian, Proprietor of

bottom of page