Stochastic Inversion

Stochastic Inversion is aiming to identify the overbought and oversold levels and enter into positions when the trend is reversing.

Features
This is a medium-term strategy, which executes around 5 trades per day on average and may open multiple positions in the same direction.

Indicator description
Stochastic Oscillator is a momentum indicator, ranging from 0 to 100, which shows where the closing price of the current bar is in relation to the highs and lows over the given period. The MetaTrader 4’s default triggers for the overbought level (sell signal) is 80 and 20 for the oversold level (buy signal) – these values indicate that the current price is near the highs/lows in the current period.

This strategy is using the levels of 83 and 17 in order to limit the number of false signals.

Strategy Description
The strategy is meant to open the positions when the current trend is getting weaker and can be expected to reverse. The strategy is using 1-hour bars.

The strategy has a relatively high accuracy - in the long term, the ratio of winning to losing trades is expected to be around 2:1.

  1. The buy signals will be generated if either of the following situations:
  2. The value of the signal line of the indicator is below 17
  3. The value of the signal line of the indicator crosses from below to above 17

For the sell signal, the trigger value is 83.

The throttle settings limit the number of signals that can be generated for each of the above conditions to 1 per 60 minutes.

The strategy does not use the take-profit, stop-loss, or trailing stop orders.

The positions will be closed and reversed when the opposite direction signal is generated, meaning that for example the long position will be reversed once the oscillator rises above 83.

Absence of take-profit orders allows the strategy to capture longer term moves.

If the strategy already has a position and an additional signal in the same direction is generated, further position will be opened.

The strategy works best then the market is trading within a range. During the strong trends in either directions the indicator value may remain in the overbought / oversold area for the prolonged periods of time and false signals will be more frequent in such periods.

 

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