Stochastic Indices Trading System
This topic should be called: Combining Stochastics with other Indicators, but Stochastic Indices Trading System sounds real nice.
Stochastic Oscillator stock indices indicator can be combined with other indices indicators to form a stock indices trading system. For our example we will combine it with:
- Moving Averages
Example 1: Indices Stochastic Trading System
Sell Indices Trading Signal Generated using Indices Stochastic Trading 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 heading downwards
- MACD moving downwards below center-line
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 the opposite direction is generated i.e. When the indices technical indicators reverse.
The good thing about using such a stock indices trading system is that we are using different types of indices indicators to confirm the indices trade signals and avoid as many indices trading whipsaws as possible in the process.
- Stochastic - is a momentum oscillator indices indicator
- RSI- is a momentum oscillator indices indicator
- Moving Averages- 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 indicator helps a indices trader to see the overall picture, while using more than one momentum stock indices indicator gives better and more reliable entry & exit points for trading indices.
The stock indices indicators combinations and their indices trading signals help to decipher a lot of the stock indices trading market activity.
Example 2: Indices Stochastic Trading System
Buy Indices Trading Signal Generated using Indices Stochastic Trading System
For this example the indices trend is clearly upwards, but at some point there were a few indices trading whipsaws generated by the stochastic oscillator stock indices indicator, can you spot them? So the question is how can a indices trader avoid trading these indices trading whipsaws?
Well, the answer is that by looking at the other technical indices indicators such as MACD stock indices indicator a indices trader could have avoided the whipsaw, even the MACD indicator had not given a crossover stock indices 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 indices market whipsaws; it is 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 stock indices indicator is above zero center-line even if the MACD lines are heading downwards then the indices trend is still upwards. As you can see from the above example MACD stock indices indicator never went below zero line and afterwards the upward indices trend continued with the MACD stock indices indicator maintaining above Zero line and continuing to move upwards.
During ranging stock indices markets Stochastic Oscillator stock indices indicator will give the fastest indices trading signals which are prone to whipsaws. This is why stochastic oscillator indicator is best combined with other stock indices indicators and the indices trading signals traded are confirmed by another one or two other Indices indicators.