Stochastic Energies Strategy
This tutorial should be called: Combining Stochastics with other Indicators, but Stochastic Energies Trading System sounds real nice.
Stochastic Oscillator indicator can be combined with other indicators to form a energies system. For our example we will combine it with:
- RSI
- MACD
- Moving Averages Energy Trading Indicator
Example 1: Energies Trading Stochastic System
Sell Energies Trading Signal Generated using Energies Trading Stochastic Trading System
From our energies system the sell signal is generated when:
- Both Moving Averages are moving down
- RSI is below 50
- Stochastic heading downwards
- MACD moving downwards below center-line
Sell signal was generated when all these energies rules were met. The exit signal is generated when a signal in opposite direction is generated i.e. When the indicators reverse.
The good thing about using such a energies 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 energies indicator
- RSI- is a momentum oscillator energies indicator
- Moving Averages Indicator- is a trend following indicator
- MACD- is a trend following indicator
It's very useful to combine more than one indicator, as a combination of signals is better than relying on just a single technical indicator. The indicator combinations reinforce each other, and cancel out false whipsaw signals.
A energies trend following indicator helps a trader to see the overall picture, while using more than one momentum technical indicator gives better and more reliable entry & exit points for trading energies.
The indicators combinations and their energies signals help to decipher a lot of the market activity.
Example 2: Energies Trading Stochastic Trading System
Buy Trading Signal Generated using Energies Trading Stochastic System
For this example the trend is clearly upwards, but at some point there were a few energies whipsaws generated by the stochastic oscillator energies indicator, can i spot them? So the question is how can a trader avoid trading these energies whipsaws?
Well, the answer is that by looking at the other technical indicators such as MACD indicator a trader could have avoided the whipsaw, even the MACD indicator had not given a crossover energies 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 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 moving downwards then the trend is still upward. 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 markets Stochastic Oscillator indicator will give the fastest signals which are prone to whipsaws. This is why stochastic oscillator indicator is best combined with other indicators and the signals traded are confirmed by another one or two other Energies indicators.
What is a Trading Plan? - Writing a Trading Plan Example
Alternatives: EA Automated Robots or Copier Trading Signals
