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