This forex price action trading system that uses a stochastic indicator and it is called the trendline trading strategy with the stochastic indicator.

Its trading rules are similar as those of the trendline trading strategy but the only difference here is that the stochastic indicator is used as a confirmation to filter that trade setups that happen on the trendline.

 

Trading Setup Requirements

Timeframes: Any

Currency Pairs: Any

Indicators: Stochastic Indicator only with default settings.

 

BUYING RULES

1. In an uptrend, you draw a rising trendline. If you don’t know how, how to draw trend lines is a good resource to read first.
2. Then wait for price to come to it and touch it.
3. If price  touches the rising trendline, check to see if the stochastic indicator is below the oversold region and if that is the case, you go to step 4.
4. Place a buy stop pending order above the high of the candlestick that corresponds to the stochastic in the oversold region.
5. Place your stop loss anywhere from 2-10 pips under the  rising trend line
6. Place your take profit target on previous swing high.

Here’s a chart of the trendline trading strategy with the stochastic indicator buy trading setup:

SELLING RULES

1. In a downtrend, you draw a falling trendline. If you don’t know how, Learn how to draw trend lines is a good resource to read first.
2. Then wait for price to come and touche the falling trendline
3. If price  touches the falling trendline, check to see if the stochastic indicator is above the over bought region and if that is the case, you go to step 4.
4. Place a sell stop pending order above the low of the candlestick that corresponds to the stochastic in the over bought region.
5. Place your stop loss anywhere from 2-10 pips above the falling trend line
6. Place your take profit target on previous swing low.

This chart below is a sell setup of the trendline trading strategy with the stochastic indicator:

SUMMARY

• As you can see, using the trendline trading strategy with the stochastic indicator is not a complicated trading system at all.
• It is a simple price action trading system even a new forex trader can find easy to understand and use.
• Using the stochastic indicator as a trade filter allows you to know that a reversal may be happening when the indicator is above the 80 level (for overbought condition) or below the 20 level (for oversold condition).
• It is also one of those forex trading strategies that you can apply a tight stop loss trading technique.

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