Stochastic Stock Trading System - Combining Stochastics with Different Types of Technical Stock Trading Indicators
This topic should be called: Combining Stochastics with other Indicators, but Stochastic Stock Trading System sounds real nice.
Stochastic Oscillator stock trading indicator can be combined with other stock trading indicators to form a stock trading system. For our example we will combine it with:
- Moving Averages
Example 1: Stock Stochastic Trading System
Sell Stock Trading Signal Generated using Stock Stochastic Trading System
From our stock trading system the sell stock trading signal is generated when:
- Both Moving Averages are moving down
- RSI is below 50
- Stochastic heading downwards
- MACD moving downwards below center-line
The sell stock trading signal was generated when all these stock trading rules were met. The exit stock trading signal is generated when a signal in the opposite direction is generated i.e. when the stock trading technical indicators reverse.
The good thing about using such a stock trading system is that we are using different types of stock trading indicators to confirm the stock trading trade signals and avoid as many stock trading whipsaws as possible in the process.
- Stochastic - is a momentum oscillator stock trading indicator
- RSI- is a momentum oscillator stock trading indicator
- Moving Averages- is a stock trading trend following stock trading indicator
- MACD- is a stock trading trend following stock trading indicator
It is very useful to combine more than one stock trading indicator, as a combination of stock trading signals is better than relying on just a single stock trading technical indicator. The stock trading indicator combinations reinforce each other, and cancel out false whipsaw stock trading signals.
A stock trading trend following indicator helps a stock trader to see the overall picture, while using more than one momentum stock trading indicator gives better and more reliable entry & exit points for trading stock.
The stock trading indicators combinations and their stock trading signals help to decipher a lot of the stock trading market activity.
Example 2: Stock Stochastic Trading System
Buy Stock Trading Signal Generated using Stock Stochastic Trading System
For this example the stock trading trend is clearly upwards, but at some point there were a few stock trading whipsaws generated by the stochastic oscillator stock trading 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 trading indicators such as MACD stock trading indicator a stock trader could have avoided the whipsaw, even the MACD indicator had not given a crossover stock trading 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 trading market stock trading trend reversal. Well the thing is that it’s not so obvious when it comes to recognizing stock trading 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 trading indicator is above zero center-line even if the MACD lines are heading downwards then the stock trading trend is still upwards. As you can see from the above example MACD stock trading indicator never went below zero line and afterwards the upward stock trading trend continued with the MACD stock trading indicator maintaining above Zero line and continuing to move upwards.
During ranging stock trading markets Stochastic Oscillator stock trading 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 trading indicators and the stock trading signals traded are confirmed by another one or two other Stock indicators.