Stochastic Strategy

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

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

RSI
MACD
Moving Averages Gold Indicator

Example 1: Stochastic System

Combining Stochastic Oscillator Technical with Other Indicators

Sell Signal Generated using Stochastic System

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

Both Moving Averages are heading down
RSI is below 50
Stochastic heading downwards
MACD heading downward below center line

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

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 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 trading indicator combinations reinforce each other, and cancel out false whipsaw xauusd trade signals.

A trend following technical indicator helps a xauusd trader to see the overall picture, while using more than one momentum gold technical indicator gives 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 System

Buy Trade Signal Generated using Stochastic 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 such as MACD indicator a gold trader could have avoided the whip saw, even the MACD technical indicator hadn't given a cross-over 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 but after some time you 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 can see from the above example MACD indicator never went below zero line and afterwards the upwards trend continued with the MACD technical indicator maintaining above Zero line & continuing to move upward.

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

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