Colored Stochastic Indicator

Colored Stochastic Indicator

The Colored Stochastic indicator shows the overbought/oversold zones of an asset in distinct colors.

The Colored Stochastic indicator for MetaTrader 4 highlights the extreme (overbought/oversold) zones of the price in two distinct colors. It is a modified version of the regular stochastic indicator, which comes with a lime and red colored line for easy visualization of extreme zones of the price.

This version of the stochastic indicator makes it pretty easy to identify potential trend reversal zones at a glance. Besides, the incorporation of color into the indicator makes it more user-friendly. For instance, a novice can easily tell when the market has reached a potential extreme zone for a possible trend reversal by merely looking at the color of the indicator’s line.

How to Trade With the Colored Stochastic Indicator

The above image typifies the action of the Colored Stochastic indicator on the EURUSD pair. The indicator paints a red-colored line to indicate an overbought zone and a lime-colored line for an oversold zone, which doubles as a sell and buy signal, respectively. This implies that you may open a buy or sell position after the indicator’s line changes to lime/red, respectively.

Furthermore, the indicator’s signal isn’t recommended to be used in isolation. Therefore, you may use it with price action or any other technical indicator as a confluence before making a trading decision.

Moreover, the Colored Stochastic indicator performs better in trending markets. Take the above image for instance; the market trend was bullish, the indicator’s line also changed to the lime color, and finally, the bullish engulfing candlestick confirms the buy entry.

Conclusion
The Colored Stochastic indicator for MT4 is an updated version of the regular stochastic oscillator, which makes it more appealing to the eye and also effective in identifying overbought/oversold zones.