A lesson on trading with the stochastic indicator on the GBP/JPY by: James ‘Big Dog’ Boyd.
The stochastic is a great tool to monitor the trade to see how much room we have left to go up or down. The stochastic again tells us the bullish or bearish sentiment in the trade. In this example we look at both bearish and bullish examples on the GBP/JPY.
Caption #1: 1- GBP/JPY short at a diagonal level of resistance on April 6th. 2 - MACD confirms rollover, stochastics crosses to the downside. 3 - GBP/JPY pair selling off at resistance. Indicator Settings: MACD Hist setting = 6,13,9 and Slow Stochastics setting = 5,3.
Caption #2: GBP/JPY confirms a stochastic “pinch” after 5 days (April 13th). Once the stochastic pinches we have 2 options… 1) Exit the trade. 2) Make sure the stop is appropriate.
When the stochastic is oversold, buyers in this case buy the GBP/JPY.
***KEY*** Watch the width between the 2 lines of the stochastic. When the GBP/JPY falls, monitor the trade by looking at the separation between the stochastics (you may have not hit your stop loss at this point). If the 2 lines are still apart they have potentially some room to drop. If they pinch, BULLS are buying the GBP/JPY back. If that’s the case, invoke # 2.
Caption #3: GBP/JPY confirms that it is going to hold the higher low. Stochastic crosses back up representing that bulls are coming back into the trade.
If the stochastic cross back down, you have a greater chance in getting stopped out.
REMEMBER, when the stochastic pinches like in photo #2, we have 2 options — 1) Exit the trade 2) Make sure the stop is appropriate.
Is the converse then true about the K line and the D line reversing? Does that imply a bearish move? It looks like it to me, but not all the time. Also if you’re using the SS, why do you use the 5 and 3 periods? The default is 10 and 10 in the Prophet Charts, and when applied the “pinch” seems more convincing.The crossing of the SS indicators lines is clearer in the rear view mirror than it is in the road ahead, anyway, so how do you gauge its true movement?
“Pup” Fred
As a full time currency trader in the UK, I thought I would add my comment to your post on the Yen and the Japanese economy. In simple terms I believe there are several things to remember when trading the yen or investing in yen assets. Firstly, the economy is unlike any other in the western world. It is highly dependent on its export markets which in turn are highly dependent on the strength or weakness of the yen. This in turn affects the speculation on the yen and in particular the carry trade which has been a favourite for many years due to the very low interest rates. This is likely to continue for some time to come and my own personal view is that the rates may be cut later this year back to 0.25%. Now bear in mind that a strong yen will adversely affect exports, and the interventionist Bank of Japan will ensure that this does not continue. In short, a recipe for a weak yen to dollar relationship for the foreseeable future. My personal view is that the pair will bounce back from below the psychological 100 barrier, back to somewhere between 105 and 110 in the short to medium term and the GBP/JPY will follow suit
Congratulations for your blog, I find it very interesting, I wonder if they know of any course that will allow me to make money with forex? Thank you for your reply.
Where did Michael Atkinson go? This blog seems to have died.