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Stochastic Overbought/Oversold Reversal

The strategy reacts to extreme levels of the Stochastic Oscillator. When the %K line dives into oversold territory the system expects a bounce, whereas overbought readings can foreshadow a drop. The method runs on short intraday candles so signals arrive quickly.

Testing indicates an average annual return of about 73%. It performs best in the crypto market.

After subscribing to the selected timeframe it monitors the %K and %D lines. A bullish setup forms when %K falls below 20 and then begins to recover. Conversely, a bearish setup appears if %K rallies above 80 and starts to turn down. A fixed percent stop controls risk for either side.

Positions are exited when the %K line crosses back through the 50 level, signaling momentum has shifted toward the opposite direction. Because stops scale with the latest ATR, the trade size adapts to volatility.

Details

  • Entry Criteria:
    • Long: %K < 20 with a bullish turn.
    • Short: %K > 80 with a bearish turn.
  • Long/Short: Both.
  • Exit Criteria: %K crossing 50 or stop-loss.
  • Stops: Yes, at 2% distance.
  • Default Values:
    • StochPeriod = 14
    • KPeriod = 3
    • DPeriod = 3
    • CandleType = 5 minute
  • Filters:
    • Category: Oscillator
    • Direction: Both
    • Indicators: Stochastic
    • Stops: Yes
    • Complexity: Basic
    • Timeframe: Intraday
    • Seasonality: No
    • Neural networks: No
    • Divergence: No
    • Risk level: Medium
using System;
using System.Collections.Generic;

using Ecng.Common;

using StockSharp.Algo.Indicators;
using StockSharp.Algo.Strategies;
using StockSharp.BusinessEntities;
using StockSharp.Messages;

namespace StockSharp.Samples.Strategies;

/// <summary>
/// Stochastic Overbought/Oversold strategy.
/// Buys when K is oversold, sells when K is overbought.
/// </summary>
public class StochasticOverboughtOversoldStrategy : Strategy
{
	private readonly StrategyParam<int> _kPeriod;
	private readonly StrategyParam<int> _dPeriod;
	private readonly StrategyParam<DataType> _candleType;
	private readonly StrategyParam<int> _cooldownBars;

	private int _cooldown;

	/// <summary>
	/// K period.
	/// </summary>
	public int KPeriod
	{
		get => _kPeriod.Value;
		set => _kPeriod.Value = value;
	}

	/// <summary>
	/// D period.
	/// </summary>
	public int DPeriod
	{
		get => _dPeriod.Value;
		set => _dPeriod.Value = value;
	}

	/// <summary>
	/// Candle type.
	/// </summary>
	public DataType CandleType
	{
		get => _candleType.Value;
		set => _candleType.Value = value;
	}

	/// <summary>
	/// Cooldown bars.
	/// </summary>
	public int CooldownBars
	{
		get => _cooldownBars.Value;
		set => _cooldownBars.Value = value;
	}

	/// <summary>
	/// Constructor.
	/// </summary>
	public StochasticOverboughtOversoldStrategy()
	{
		_kPeriod = Param(nameof(KPeriod), 3)
			.SetGreaterThanZero()
			.SetDisplay("K Period", "Smoothing period for %K", "Indicators");

		_dPeriod = Param(nameof(DPeriod), 3)
			.SetGreaterThanZero()
			.SetDisplay("D Period", "Smoothing period for %D", "Indicators");

		_candleType = Param(nameof(CandleType), TimeSpan.FromMinutes(1).TimeFrame())
			.SetDisplay("Candle Type", "Type of candles to use", "General");

		_cooldownBars = Param(nameof(CooldownBars), 500)
			.SetRange(1, 1000)
			.SetDisplay("Cooldown Bars", "Bars to wait between trades", "General");
	}

	/// <inheritdoc />
	public override IEnumerable<(Security sec, DataType dt)> GetWorkingSecurities()
	{
		return [(Security, CandleType)];
	}

	/// <inheritdoc />
	protected override void OnReseted()
	{
		base.OnReseted();
		_cooldown = default;
	}

	/// <inheritdoc />
	protected override void OnStarted2(DateTime time)
	{
		base.OnStarted2(time);

		_cooldown = 0;

		var stochastic = new StochasticOscillator
		{
			K = { Length = KPeriod },
			D = { Length = DPeriod },
		};

		var subscription = SubscribeCandles(CandleType);
		subscription
			.BindEx(stochastic, ProcessCandle)
			.Start();

		var area = CreateChartArea();
		if (area != null)
		{
			DrawCandles(area, subscription);
			DrawIndicator(area, stochastic);
			DrawOwnTrades(area);
		}
	}

	private void ProcessCandle(ICandleMessage candle, IIndicatorValue stochValue)
	{
		if (candle.State != CandleStates.Finished)
			return;

		if (!stochValue.IsFormed)
			return;

		var stochTyped = (StochasticOscillatorValue)stochValue;

		if (stochTyped.K is not decimal kValue)
			return;

		if (_cooldown > 0)
		{
			_cooldown--;
			return;
		}

		if (Position == 0 && kValue < 20)
		{
			BuyMarket();
			_cooldown = CooldownBars;
		}
		else if (Position == 0 && kValue > 80)
		{
			SellMarket();
			_cooldown = CooldownBars;
		}
		else if (Position > 0 && kValue > 80)
		{
			SellMarket();
			_cooldown = CooldownBars;
		}
		else if (Position < 0 && kValue < 20)
		{
			BuyMarket();
			_cooldown = CooldownBars;
		}
	}
}