# Stochastic Mean Retracement Forex Trading Strategy

“Choose your battles wisely!” This is a popular saying that is used in various aspects of life. The same is true in retail. Successful traders know when to trade and when not to trade. In fact, it is a common occurrence in a day trader week that a trader will have a day without a single trade being triggered. Wise traders will know if the market is suitable for trading with the strategies they use.

If trading is a struggle, then market conditions are a battlefield. No general wants to fight on a battlefield where he is at a disadvantage. The commander who knows when and where to fight usually wins. The same goes for dealers. Traders should not enter a trade when market conditions do not support their trading style. Instead, traders should look for opportunities elsewhere or wait for market conditions to change in their favor.

One of the best market conditions for trading is a trending market. In this type of market, the trader usually has a clear advantage because the market moves strongly in one direction. Traders can easily see which direction to trade in order to have a higher probability of making profitable trades.

Stochastic Mean Retracement Forex Trading Strategy is a trend following strategy that trades the retracement in the direction of the mathematical average of the price of a Forex pair. It uses several technical indicators to systematically determine whether the market is trending or not and to identify certain retracement entry points in a particular trend.

## Great oscillator

Awesome Oscillator (AO) is a trend following technical indicator used by traders to identify the general direction of a trend.

AO measures momentum by calculating the difference between the 5-period simple moving average (SMA) and the 34-period simple moving average (SMA). However, instead of using the standard closing price of each candle, the underlying SMA numbers are derived from the midpoint of each bar's high and low.

The numbers are then plotted as histogram bars that oscillate positively or negatively. Positive bars indicate the direction of the bullish trend, while negative bars indicate the direction of the bearish trend.

Awesome Oscillator can also be used to identify trend strength based on bar color. Green positive bars indicate a strengthening bullish trend, while red positive bars indicate a weakening bullish trend. On the other hand, a red negative bar indicates a strengthening bearish trend, while a green negative bar indicates a weakening bearish trend.

## Stochastic cross warning

Stochastic Cross Alert Indicator is a trend-following indicator based on the Stochastic Oscillator. Basically, it always gives an entry signal when the Stochastic Oscillator lines cross.

The Stochastic Oscillator is a popular technical indicator that identifies the momentum and direction of a trend based on historical price action. It shows two lines that could move from 0 to 100. The range also has markers at the 30 and 70 levels to indicate possible overbought and oversold market conditions. The stochastic oscillator usually indicates a possible momentum reversal when its two lines cross.

The Stochastic Cross Alert indicator is based on this concept. He drew an arrow when he found that the lines underlying the stochastic oscillator had crossed. These arrows can be used as entry signals or triggers for trades.

## trading strategy

This trading strategy is a trend following strategy that generates an entry signal on the retracement.

To trade this strategy, we must first identify the direction of the trend. To do this, we use a 50 period Exponential Moving Average (EMA). The trend is based on the slope of the 50 EMA line as well as price action movements. Price should show higher swing highs and swing lows to indicate a bullish trend, or lower swing highs and swing lows to indicate a bearish trend.

Awesome Oscillator serves as a confirmation of the trend direction bias. The AO bars should coincide with the trend direction depending on whether the bars are predominantly positive or negative.

ALSO READ: Hyper Trend Forex Trading Strategy

Once we confirm the trend, we can use the retracement to look for possible trade entries. For this we use signals from the Stochastic Cross Alert indicator. The signal generated by the Stochastic Cross Alert indicator will confirm that the price has retreated low enough to warrant a temporary short-term momentum reversal and that the short-term trend has resumed the direction of the longer-term trend.