Combining Stochastics with Different Types of Indicators
This guide should really be named: Combining Stochastics with other Indicators, but Stochastic XAUUSD System just sounds nicer.
Stochastic Oscillator technical indicator can be combined together with other trading indicators to form a xauusd system. For our example we'll combine it with:
- RSI
- MACD
- MAs Moving Averages Indicator
Example 1: Stochastic System
Sell XAUUSD Signal Generated using XAUUSD Stochastic System
From our xauusd system the sell signal gets derived & generated when:
- Both Moving Averages are moving downwards
- RSI is below 50
- Stochastic moving downwards
- MACD heading downwards below centerline
Sell signal was derived & generated when all the xauusd rules were met. The exit signal is generated when a signal in the opposite trend market direction is derived & generated i.e. When technical indicators reverse.
The upside of this XAUUSD approach is using various technical tools to check trade signals. It helps skip fake moves and whipsaws.
- Stochastic - is a momentum oscillator technical indicator
- RSI- is a momentum oscillator technical indicator
- MAs Indicator- is a trend following trading indicator
- MACD- is a price trend following indicator
It helps a lot to use more than one technical indicator, because getting several trading signals is better than just one. The technical indicator combinations make each signal stronger and get rid of incorrect gold trade signals.
A technical tool that follows trends helps someone trading xauusd/gold see the bigger picture, while using multiple momentum tools gives better and more dependable spots to enter and exit xauusd trades.
The indicators combinations & their signals help to decipher a lot of the market activity.
Example 2: Stochastic System
Buy Signal Generated using XAU USD Stochastic System
In this case, the trend is clearly going up, but at some points, the stochastic oscillator technical indicator caused some xauusd price swings: can you spot them? The question is, how can a trader avoid trading during these xauusd price swings?
Well, the answer is that by looking at the other indicators such as MACD a gold trader could have avoided the whip saw, even the MACD had not given a cross over trading signal although it was very close to the zero center line level, at the same time the slope at which the moving averages 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 whipsaws: it's a skill which takes some time to master but after some time you can spot fake outs from a mile away.
A key insight is recognizing that as long as the MACD indicator remains above the zero centerline, the overall trend remains upward, even if the signal lines are momentarily declining. As shown in prior examples, a gold trader can observe that the MACD never dipped below zero, which allowed the upward trend to persist, with the MACD continuing its climb beyond the Zero-line.
During market conditions characterized by trading ranges, the Stochastics Indicator generates the most agile signals, which are often susceptible to whipsaws. Therefore, the stochastic oscillator is optimally combined with supplementary technical indicators, requiring signal confirmation from one or two other technical tools.
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