Stochastic Stock Indices Trade System - Generating Stock Index Trading Signals
Stochastic Oscillator Indices indicator can be combined with other Indices trading indicators to form a Stock Indices trading system. For our example we will combine stochastic oscillator indicator with:
- RSI
- MACD
- Moving Averages
Example 1: Stock Index Stochastic Trading System
Sell Signal Generated using Stock Index Stochastic Trading System
From our Indices trading system the sell Stock Indices trading signal is generated when:
- Both MAs Moving Averages are moving down
- RSI is below 50
- Stochastic heading downward
- MACD moving downward below center-line
The sell Stock Indices trading signal was generated when all these Stock Indices trading rules were met. The exit Stock Index signal is generated when a signal in the opposite direction is generated i.e. When the technical indicators reverse.
The good thing about using such a Stock Indices trading system is that we are using different types of Stock Index indicators to confirm the Stock Indices trade signals and avoid as many Stock Index whipsaws as possible in the process.
- Stochastic - is a momentum oscillator Indices indicator
- RSI- is a momentum oscillator Indices indicator
- Moving Averages- is a trend following Stock Index indicator
- MACD- is a trend following Stock Index indicator
It is very useful to combine more than one Stock Indices indicator, as a combination of Stock Index trading signals is better than relying on just a single Stock Indices technical indicator. The Stock Indices indicator combinations reinforce each other, & cancel out false whipsaw Stock Index trading signals.
A Stock Index trend following indicator helps a trader to see the overall picture, while using more than one momentum Stock Indices indicator gives better & more reliable entry & exit points for trading Stock Indices.
Example 2: Stock Index Stochastic Trading System
Buy Signal Generated using Stock Index Stochastic Trading System
For this example the Stock Indices trend is clearly upward, but at some point there were a few Stock Index trading whipsaws generated by the stochastic oscillator Indices indicator, can you spot them? So the question is how can a trader avoid trading these Stock Indices whipsaws?
Well, answer is that by looking at the other technical Stock Indices indicators such as MACD Stock Index indicator a trader could have avoided the whipsaw, even the MACD indicator had not given a crossover Indices trading signal although it was very close to the zero center-line level, at the same time the gradient at which the moving averages turned was not so sharp as to warrant a decisive Stock Indices market trend reversal. Well the thing is that it’s not so obvious when it comes to recognizing Stock Index market whipsaws: it is a skill that takes some time but after some time and practice you'll learn how to identify these whipsaws.
One tip is that as long as MACD Stock Index indicator is above zero center-line even if the MACD lines are heading downward then the Stock Indices trend is still upwards. As you can see from the above example MACD Stock Index indicator never went below zero line and afterwards the upward Stock Indices trend continued with the MACD Stock Index indicator maintaining above Zero line and continuing to move upwards.
During ranging Stock Index markets Stochastic Oscillator Indices indicator will give the fastest Stock Index trading signals which are prone to whipsaws. This is why stochastic oscillator indicator is best combined with other Indices indicators and the Stock Indices signals traded are confirmed by another one or two other Indices indicators.
