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Combining Stochastics with Different Types of Stocks Indicators


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



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

  • RSI

  • MACD

  • Moving Averages


Example 1: Stock Stochastic Trading System


Sell Stock Trading Signal Generated using Stock Stochastic Trading System

Sell Stock Trading Signal Generated using Stock Stochastic Trading System


From our stock trading system the sell stock signal is generated when:

  1. Both Moving Averages are moving down

  2. RSI is below 50

  3. Stochastic heading downwards

  4. MACD moving downwards below center-line


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



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



  • Stochastic - is a momentum oscillator stock indicator

  • RSI- is a momentum oscillator stock indicator

  • Moving Averages- is a stock trend following stock indicator

  • MACD- is a stock trend following stock indicator


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



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


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

Example 2: Stock Stochastic Trading System

Buy Stock Trading Signal Generated using Stock Stochastic Trading System

Buy Stock Trading Signal Generated using Stock Stochastic Trading System


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


Well, the answer is that by looking at the other technical stock indicators such as MACD stock indicator a stock trader could have avoided the whipsaw, even the MACD indicator had not given a crossover stock signal although it was very close to the zero center-line level, at the same time the gradient at which the moving averages turned was not so sharp as to warrant a decisive stock market trend reversal. Well the thing is that it’s not so obvious when it comes to recognizing stock 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 stock indicator is above zero center-line even if the MACD lines are heading downwards then the stock trend is still upwards. As you can see from the above example MACD stock indicator never went below zero line and afterwards the upward stock trend continued with the MACD stock indicator maintaining above Zero line and continuing to move upwards.


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

 

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