Stochastic as a leading indicator

Whether its RSI, Momentum or CCI they all are leading indicators that do one thing. I prefer to use fast stochastic for 5 periods. The parameters are 5, 3, 3. It shows the representation of where the market has closed for each period in relation to the trading range for the specified number of periods used in the indicator. This line is called %K. There is also %D line which is simply a MA of %K.

Generally people use strategies based on crossing of these 2 lines, but i think it can only make sense for slow stochastics where parameters are 14, 3, 3.

My favorite one is fast stochastic. I'm not going to use %D line at all because it slows down the fact of overbought / oversell market.

Then we have 2 lines with 80 and 20 levels. When stochastic is crossing level 80 bottom-up we have overbought market and of course crossing level 20 top-down means oversell. To be completely sure we have such cases we can higher levels to 90 and 10 accordingly.

Generally you can simply wait while stochastic goes oversell and buy then wait till it goes overbought and close position. This technique works 50/50. So by doing these trades you aren't risking too much.

There is another a little more complicated technique. You need to buy when stochastic crosses its level 80 bottom-up and close position when it crosses the same level top-down. This method works well on important news, publishing of economic indicators and openning of major stock exchanges.

Thereby we have 2 completely different trade methods using a single stochastic indicator. You have to find out when it is necessary to use first one and when second one. It is also useful to merge signals of different trading methods together for better results.