Combining Stochastics with Different Types of Technical Crude Oil Indicators
This topic 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 indicators to form a oil system. For our example we will combine it with:
- RSI
- MACD
- Moving Averages Crude Trading Technical Indicator
Example 1: Oil Trading Stochastic Trading System
Sell Oil Signal Generated using Stochastic System
From our oil system the sell crude oil trade signal is generated when:
- Both Moving Averages are moving down
- RSI is below 50
- Stochastic heading downwards
- MACD heading downward below centerline
The sell oil signal was generated when all these oil rules were met. The exit oil signal is generated when a trading signal in the opposite direction is generated i.e. When the technical indicators reverse.
The good thing about using such a oil system is that we are using different types of oil indicators to confirm the trade signals & avoid as many oil whip-saws as possible in process.
- Stochastic - is a momentum oscillator crude oil technical trading indicator
- RSI- is a momentum oscillator crude oil technical trading indicator
- Moving Averages Technical Indicator- is a oil trend following crude oil technical trading indicator
- MACD- is a oil trend following crude oil technical trading indicator
It is very useful to combine more than one oil indicator, as a combination of oil signals is better than relying on just a single oil technical indicator. The oil indicator combinations reinforce each other, and cancel out false whipsaw oil 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 and more reliable entry and exit points for trading crude oil.
The oil indicators combinations and their oil signals help to decipher a lot of the oil market activity.
Example 2: Stochastic System
Buy Oil Trading Signal Generated using Stochastic System
For this example the oil trend is clearly upward, but at some point there were a few oil whipsaws generated by the stochastic oscillator oil indicator, can you spot them? - So the question is how can a trader avoid trading these oil whipsaws?
Well, the answer is that by looking at the other technical oil indicators such as MACD indicator a trader could have avoided the whip saw, 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 oil 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 crude oil technical technical indicator maintaining above Zero line and continuing to move upwards.
During ranging oil markets Stochastic Oscillator indicator will give the fastest oil signals which are prone to whipsaws. This is why stochastic oscillator indicator is best combined with other indicators and the oil signals traded are confirmed by another one or two other Oil indicators.
