Combining Stochastics with Different Types of Technical Indicators

This tutorial should be called: Combining Stochastics with other Technical Indicators, but Stochastic CFD System sounds real nice.

Stochastic Oscillator technical indicator can be combined with other trading indicators to form a cfd system. For our example we will combine it with:

• RSI
• MACD
• Moving Averages CFDs Trading Indicator

Example 1: CFD Trading Stochastic Trading Strategy

Sell CFD Signal Generated using Stochastic System

From our cfd system the sell cfd signal is generated when:

1. Both Moving Averages are moving down
2. RSI is below 50
3. Stochastic heading downwards
4. MACD heading downward below center-line

The sell cfd signal was generated when all these cfd rules were met. The exit signal is generated when a trading signal in the opposite direction is generated i.e. When the technical indicators reverse.

Good thing about using such a cfd system is that we are using different types of indicators to confirm the trade signals and avoid as many whipsaws as possible in the process.

• Stochastic - is a momentum oscillator indicator
• RSI- is a momentum oscillator indicator
• Moving Averages Indicator- is a cfd trend following indicator
• MACD- is a cfd trend following technical indicator

It's very useful to combine more than one cfd indicator, as a combination of trading signals is better than relying on just a single cfd indicator. The cfd indicator combinations reinforce each other, and cancel out false whipsaw trading signals.

A cfd trend following technical indicator helps a trader to see the overall picture, while using more than one momentum cfd indicator gives better and more reliable entry and exit points for trading cfd.

The cfd indicators combinations and their signals help to decipher a lot of the cfd market activity.

Example 2: Stochastic System

Buy CFD Signal Generated using Stochastic System

For this example the cfd trend is clearly upward, but at some point there were a few cfd whipsaws generated by the stochastic oscillator indicator, can you identify them? - So the question is how can a trader avoid trading these cfd whipsaws?

Well, the answer is that by looking at the other technical cfd indicators such as MACD indicator a trader could have avoided the whipsaw, even the MACD technical indicator had not given a cross-over trading signal although it was very close to the zero center line level, at the same time the gradient at which the moving averages indicators turned was not so sharp as to warrant a decisive cfd market trend reversal. Well the thing is that it's not so obvious when it comes to recognizing 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 cfd 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 and continuing to move upwards.

During ranging markets Stochastic Oscillator indicator will give the fastest signals which are prone to whipsaws. This is why stochastic indicator is best combined with other indicators and the cfd signals traded are confirmed by another one or two other CFD indicators.