The Schaff Trend Cycle indicator can be referred to as a cyclical oscillator that is created by calculating a stochastic together with a MACD line by making use of market cycles. The resulting indicator is an improvement on the stochastic; it is not choppy between trends but is still very fast at reacting to market changes.
This indicator was put together by Doug Schaff and he came about it by discovering that the trends in the market accelerate and decelerate in cycles. The algorithm for the creation of this indicator went public in 2008. The Schaff Trend Cycle Indicator combines two different techniques in determining what direction the market is headed at any point in time. The two techniques are the MACD and Stochastic. The indicator value moves within two levels 100 and 0. 25 and 75 are two levels watched out for.
The working of the STC is very easy to understand in forex trading strategies. Basically, the STC indicator identifies the start of a trend much faster than the MACD. It is able to do this by using the EMAs used by the MACD. However, the cycle aspect which incorporates cycle trends in the market makes it a much better indicator than the MACD.
The cycle trends move in accordance with a certain number of days and this is embedded into the algorithm of the STC indicator. This explains why the STC indicator is considered a better and more reliable indicator than any other oscillator. The MACD is an indicator that is based on a couple of EMAs in addition to a signal line. The couple of EMAs include the 26 period EMA and the 12period EMA. To enhance the MACD, the STC indicator has enhanced the features of the MACD by adding a 23-period and 50-period EMA while the cycle component is used as the 10-period trigger line. Since the number of cycle trends can be measured by the number of days, this indicator can easily measure the strength of trends at any given time.
Input parameters for the STC indicator
The MAshort should be left at 23. This is the period for fast moving MACD line and it must always be of lower value than the MAlong. The MAlong should be left at 50. This represents the period of slow moving average for the MACD line calculation and must always be of higher value than the MAshort. The Cycle should be left at 10. This is the length of the cycle in chart periods. With this setting, the resulting cycle will be longer because two stochastics are calculated.
Using the STC with your forex trading strategies
The simplest way to use this indicator is to enter a sell as soon as the STC line goes below the 75 line and enter a buy when the line rises above the 25 level. In order to weed out bad signals, simply wait for the next candle after the signal candle to either close higher or lower than the signal candle. The signal candle is the one that formed during the period at which the STC line went below 25 or 75.
Get a free Forex PDF PLUS:
- 14 Video Lessons
- Free One-on-One Training
- A 5000$ Training Account
- In-House Daily Analysis
- Get FULL ACCESS