Stochastic Stocks System
This topic should be called: Combining Stochastics with other Indicators, but Stochastic Stocks System sounds real nice.
Stochastic Oscillator technical indicator can be combined with other indicators to form a stocks system. For our example we will combine it with:
- RSI
- MACD
- Moving Averages Stock Trading Technical Indicator
Example 1: Stocks Trading Stochastic System
Sell Stocks Signal Generated using Stochastic Trading System
From our stocks system the sell stocks trade signal gets generated when:
- Both Moving Averages are moving down
- RSI is below 50
- Stochastic moving downward
- MACD moving downward below center-line
Sell trading signal was generated when all these stocks rules were met. The exit stocks signal is generated when a trading signal in opposite direction is generated i.e. When the technical indicators reverse.
Good thing about using such a stocks system is that we are using different types of stocks indicators to confirm the trade signals & avoid as many whipsaws as possible in the process.
- Stochastic - is a momentum oscillator stocks trading technical indicator
- RSI- is a momentum oscillator stocks trading technical indicator
- Moving Averages Technical Indicator- is a stocks trend following stocks trading technical indicator
- MACD- is a stocks trend following stocks trading technical indicator
It is very useful to combine more than one stocks indicator, as a combination of stocks signals is better than relying on just a single stocks technical indicator. The stocks indicator combinations reinforce each other, and cancel out false whipsaw signals.
A stocks trend following indicator helps a trader to see the overall picture, while using more than one momentum stocks technical indicator gives better & more reliable entry & exit points for trading stocks.
The stocks indicators combinations & their stocks signals help to decipher a lot of the stocks market activity.
Example 2: Stochastic Trading System
Buy Stocks Signal Generated using Stocks Trading Stochastic System
For this example the stocks trend is clearly upwards, but at some point there were a few stocks whipsaws generated by the stochastic oscillator stocks indicator, can i spot them? So the question is how can a trader avoid trading these stocks whipsaws?
Well, the answer is that by looking at the other technical stocks indicators such as MACD indicator a trader could have avoided the whipsaw, even the MACD technical indicator had not given a cross-over stocks 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 stocks market stocks trend reversal. Well the thing is that it’s not so obvious when it comes to recognizing stocks 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 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 technical indicator maintaining above Zero line & continuing to move upwards.
During ranging stocks markets Stochastic Oscillator indicator will give the fastest stocks signals which are prone to whipsaws. This is why stochastic oscillator indicator is best combined with other indicators and the stocks signals traded are confirmed by another one or two other Stocks indicators.
