Stochastic Oscillator Strategy

This topic should be called: Combining Together Stochastic with other Trading Indicators, but Stochastic Gold System sounds real nice.

Stochastic Oscillator can be combined with other indicators to form a system. For our illustrations we will combine it together with:

RSI
MACD
Moving Averages Gold Indicator

Example 1: Stochastic Oscillator Trading System

Combining Together Stochastic Oscillator Technical Indicator with Other Indicators

Sell Signal Generated using Stochastic Oscillator Trading System

From our system the sell xauusd trade signal is generated when:

Both Moving Averages are heading down
RSI is below 50
Stochastic heading and moving downwards
MACD heading downward below centerline

Sell signal was generated when all these gold trading rules were met. The exit signal is derived & generated when a signal in the opposite trend direction is generated i.e. When the technical indicators reverse.

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

Stochastic - is a momentum oscillator xauusd technical indicator
RSI- is a momentum oscillator xauusd technical indicator
Moving Averages Gold Indicator- is a market trend following technical indicator
MACD- is a market trend following indicator

It is very helpful and useful to combine more than one technical indicator, as a combination of signals is much better than relying on just a single technical indicator. The xauusd technical indicator combinations reinforce each other, and cancel out false whipsaw xauusd trade signals.

A trend following technical indicator helps a gold trader to see the over-all picture, while using more than one momentum gold technical indicator generates better & more reliable entry and exit points for trading gold.

The indicators combinations & their trading signals help to decipher a lot of the market activity.

Example 2: Stochastic Oscillator Trading System

Buy Trade Signal Generated using Stochastic Oscillator Trading System

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

Well, the answer is that by looking at the other technical indicators like MACD indicator a gold trader could have avoided the whip saw, even the MACD technical indicator hadn't given a crossover trading signal although it was very close to the zero center line level, at the same time the gradient at which the 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 fake outs: it's a skill that takes some time to learn but after a period of time you as a trader can spot whipsaws from a mile away.

One tip is that as long as MACD indicator is above zero centerline even if the MACD lines are moving downward then the market trend is still upwards. As you as a trader can see from the above example MACD indicator never went below zero mark and afterwards the upwards trend continued with the MACD indicator maintaining above Zero line & continuing to move upward.

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

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Stochastic Oscillator Strategy