Combining Stochastics with Different Types of Technical Indicators
This tutorial should be called: Combining Stochastics with other Indicators, but Stochastic XAUUSD System sounds real nice.
Stochastic Oscillator technical indicator can be combined with other trading indicators to form a xauusd system. For our example we'll combine it with:
- RSI
- MACD
- MAs Trading Indicator
Example 1: Stochastic System
Sell XAUUSD Signal Generated using XAUUSD Stochastic System
From our xauusd system the sell signal gets generated when:
- Both MAs are moving down
- RSI is below 50
- Stochastic moving downward
- MACD heading downwards below centerline
Sell signal was generated when all these xauusd rules were met. The exit signal is given when a signal in opposite market direction is generated i.e. When the indicators reverse.
The good thing about using such a xauusd system is that we're using various types of indicators to confirm the trade signals and avoid as many whipsaws as possible in process.
- Stochastic - is a momentum oscillator indicator
- RSI- is a momentum oscillator indicator
- MAs Indicator- is a trend following indicator
- MACD- is a trend following indicator
It's very useful to combine more than one indicator, as a combination of signals is better than relying on one single indicator. The technical trading indicator combinations reinforce each other, and cancel out false whipsaw gold trade signals.
A trend following technical indicator helps a trader to see the overall picture, while using more than 1 momentum technical indicator gives better & more reliable entry and exit points for trading xauusd.
The indicators combinations & their signals help to decipher a lot of the market activity.
Example 2: Stochastic System
Buy Signal Generated using XAUUSD Stochastic System
For this example the trend is clearly upward, but at some point there were a few xauusd whipsaws generated by the stochastic oscillator indicator, can you spot them? - So the question is how can a trader avoid trading these xauusd whipsaws?
Well, the answer is that by looking at the other technical indicators such as MACD indicator a trader could have avoided the whip saw, even the MACD indicator had not 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 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 that takes some time but after some time you can spot fake outs from a mile away.
One tip is that as long as MACD indicator is above zero center-line even if the MACD lines are moving downwards then the trend is still upwards. As you can see from the above example MACD never went below zero line & afterwards the upward trend continued with the MACD maintaining above Zero line and continuing to move upwards.
During ranging markets Stochastic Oscillator indicator will give the fastest signals which are prone to whipsaws. This is why stochastic oscillator is best combined with other indicators and the signals traded are confirmed by another one or two other indicators.
