Stochastic Indices Trading System
This tutorial should be called: Combining Stochastics with other Technical Indicators, but Stochastic Indices System sounds real nice.
Stochastic Oscillator technical indicator can be combined with other indicators to form a trading system. For our examples we will combine it with:
- RSI
- MACD
- Moving Averages Stock Indices Trading Technical Indicator
Example 1: Indices Stochastic System
Sell Indices Trading Signal Generated using Stochastic System
From our indices trading system the sell stock indices signal is generated when:
- Both Moving Averages are moving down
- RSI is below 50
- Stochastic moving downward
- MACD heading downwards below centerline
The sell stock indices signal was generated when all these indices trading rules were met. The exit stock indices signal is generated when a signal in opposite direction is generated i.e. When the technical indicators reverse.
Good thing about using such a stock indices system is that we are using different types of indices indicators to confirm the trade signals & avoid as many whipsaws as possible in process.
- Stochastic - is a momentum oscillator indices indicator
- RSI- is a momentum oscillator indices indicator
- Moving Averages Technical Indicator- is a indices trend following indices indicator
- MACD- is a indices trend following indices indicator
It is very useful to combine more than one stock indices indicator, as a combination of indices trading signals is better than relying on just a single indices technical indicator. The stock indices indicator combinations reinforce each other, and cancel out false whipsaw stock indices signals.
A indices trend following technical indicator helps a trader to see the overall picture, while using more than one momentum stock indices technical indicator gives better & more reliable entry and exit points for trading indices.
The stock indices indicators combinations & their indices trading signals help to decipher a lot of the stock indices trading market activity.
Example 2: Indices Stochastic System
Buy Indices Trading Signal Generated using Indices Stochastic System
For this example the indices trend is clearly upward, but at some point there were a few indices trading whipsaws generated by the stochastic oscillator stock indices indicator, can you identify them? - So the question is how can a trader avoid trading these indices trading whipsaws?
Well, the answer is that by looking at the other technical indices indicators such as MACD indicator a trader could have avoided the whip saw, even the MACD technical indicator had not given a crossover stock 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 technical indicators 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 indices market whipsaws: it's a skill that takes some time but after some time you can spot whipsaws from a mile away.
One tip is that as long as MACD indicator is above zero center-line even if the MACD lines are heading downwards then the trend is still upwards. As you can see from the above example MACD indicator never went below zero line and afterwards the upward trend continued with the MACD indicator maintaining above Zero line and continuing to move upwards.
During ranging stock indices markets Stochastic Oscillator indicator will give the fastest indices trading signals which are prone to whipsaws. This is why stochastic oscillator indicator is best combined with other indicators & the indices trading signals traded are confirmed by another one or two other Indices indicators.
