Stochastics just tells you what price is doing relative to what it was doing a certain number of bars ago. It has no predictive ability. A cross at the bottom is followed by an uptrend just as often as its followed by a downtrend. When it hits the oversold line price will reverse just as often as it will continue going up. But if you can make it work for you, then keep doing what is working for you.
A moving average is simply a way to smooth out price action over time.People misuse moving averages as a trading entry ,we use it here as a support or resistance lines.This aids the trader in looking for areas of lows to buy and highs to sell.
Most of these set ups are are to be traded on the following basis 1) follow the trend; 2) let your profits run; 3) cut your losses short; and 4) manage your money so you can stay in the game. If you design something around following those rules, you'll make a lot of money. . Always Preserve Capital. Traders should limit loss to 0.5% of total capital for any one position http://www.getfolio.com/investment_experts/Van-interview.asp http://www.robertwcolby.com/rules.html
This set was up was eventually a failure , so be prepared to cut losses ......................and stalk the market patiently for hours for another set up.Most set ups look the same , many fail , only one out of 10 materialises into a big winner. http://www.elitetrader.com/vb/showthread.php?threadid=252185 Learn to stalk the market for set ups http://www.youtube.com/watch?v=FnKdsnDa4kc
The importance of the exit strategy http://www.yourtradingcoach.com/products/ebooks/The-Importance-Of-Exit-Strategy.pdf
Too many people don't think outside the box. A moving ave can be anything to anybody so long as they backtest their ideas with sound money management techs. I use moving aves all the time for entry, getting in on deeper retracements allows me to risk less, what's wrong with that? If it is a support/resistance area, perfect way to get in and risk 4-5 ticks in ES. Moving averages can also alert the trader for divergences and reverse divergences, THIS is huge, as it tells me when NOT to take a signal. Does yours tell you when not to take signals? Traders do not have to use the closes, using the highs and lows as an indicator in itself can alert the trader to changes he can't spot on price itself. Only in ones backtesting can someone judge optimal targets and stop loss, but even that can be broken down further as to duration of trade, for consistency in day trading there is always a trade off for larger profits and win/loss, smoother equity curve requires smaller profits for me. I think people confuse "Edge", it is different for everyone and depending on experience, this changes. Those who don't make consistent money often times believe it is a system, those who have traded for long time might have more of a philosophical thoughts of watching price patterns and laughing all day long cause they see where the inexpereinced are getting screwed.
This is a really nice set up.It is a current live set up. Price is now above previous channel highs and resistance trend line , so it is now support , and a chart confirmed support because it is rejected from below resistance.
I use lwma 18 on 15 minutes charts , for several purposes , many traders use 20 ema of bollingers , some use just a 20 ema or 23 ema.If price moves far away from lwma 18 , it is often sign of overbought price or oversold price , some traders like price to retrace to lwma 18/ema 23 before entry .If price is above lwma 18 , it provides good support for longs scalps , it it goes below i close longs and if it goes above i close shorts , if it goes below I scalp shorts. Another way to see overbought/oversold areas is tops and bottoms of channels , and avoid using rsi in trending markets for these indications. http://www.ino.com/blog/2011/05/rsi-–-overbought-oversold-or-overplayed/