Combining Stochastics with Different Types of Indicators
This guide should be called: Combining Stochastics with other Indicators, but Stochastic XAUUSD System sounds real nice.
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 good thing about using such a xauusd strategy is that we are using different types of technical indicators to confirm the trade signals and avoid as many fake out whipsaw signals as possible in process.
- 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 is very helpful and useful to combine more than one technical indicator, as a combination of trading signals is better than relying on one single indicator. The technical indicator combinations reinforce each other signal, & cancel out false whipsaw gold trade signals.
A trend following technical indicator helps a xauusd/gold trader to see the overall picture, while using more than 1 momentum technical indicator gives better and more reliable entry and points for exit trading xauusd.
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
For this example the trend is clearly upward, but at some point there were a few xauusd whipsaws generated by the stochastic oscillator technical indicator indicator, can you identify them? - So the question is how can a trader avoid trading these xauusd whipsaws?
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.
One tip is that as long as MACD is above zero centerline even if the MACD lines are moving downwards then the trend is still upwards. As you as a gold trader can see from the above example MACD never went below the zero line & afterwards the upward trend continued with the MACD maintaining above Zero-line and continuing to move upwards.
During range-bound markets Stochastics Indicator indicator will give the fastest signals which are prone to whipsaws. This is why stochastic oscillator is best combined together with other technical indicators & the signals traded are confirmed by another one or 2 other technical indicators.
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