Stochastic Stock Indices Trade System - Generating Stock Indices Trade Signals
Stochastic Oscillator Stock Indices indicator can be combined with other Stock Indices trading indicators to form a Stock Indices trading system. For our example we will combine stochastic oscillator indicator with:
- RSI
- MACD
- Moving Averages
Example 1: Indices Stochastic System
Sell Signal Generated using Indices Stochastic System
From our Stock Indices trading system the sell Stock Indices trading signal is generated when:
- Both MAs Moving Averages are moving down
- RSI is below 50
- Stochastic moving downward
- MACD moving downward below center-line
The sell Stock Indices trading signal was generated when all these Stock Indices trading rules were met. The exit Stock Indices signal is generated when a signal in the opposite direction is generated i.e. When the technical indicators reverse.
The good thing about using such a Stock Indices trading system is that we are using different types of Stock Indices indicators to confirm the Stock Indices trade signals & avoid as many Indices whipsaws as possible in the process.
- Stochastic - is a momentum oscillator Stock Indices indicator
- RSI- is a momentum oscillator Stock Indices indicator
- Moving Averages- is a trend following Stock Indices indicator
- MACD- is a trend following Stock Indices indicator
It is very useful to combine more than one Stock Indices indicator, as a combination of Stock Indices trading signals is better than relying on just a single Stock Indices technical indicator. The Stock Indices indicator combinations reinforce each other, and cancel out false whipsaw trading signals.
A Indices trend following indicator helps a trader to see the overall picture, while using more than one momentum Stock Indices indicator gives better & more reliable entry & exit points for trading Stock Indices.
Example 2: Indices Stochastic System
Buy Signal Generated using Stock Indices Stochastic System
For this example the Stock Indices trend is clearly upwards, but at some point there were a few Indices trading whipsaws generated by the stochastic oscillator Stock Indices indicator, can you spot them? So the question is how can a trader avoid trading these Stock Indices whipsaws?
Well, the answer is that by looking at the other technical Stock Indices indicators such as MACD Indices indicator a trader could have avoided the whipsaw, even the MACD indicator had not given a crossover Stock Indices trading signal although it was very close to the zero center-line level, at the same time the gradient at which the moving averages turned was not so sharp as to warrant a decisive Stock Indices market trend reversal. Well the thing is that it’s not so obvious when it comes to recognizing Stock Indices market whipsaws: it's a skill that takes some time but after some time & practice you will learn how to identify these whipsaws.
One tip is that as long as MACD Indices indicator is above zero center-line even if the MACD lines are moving downward then the Stock Indices trend is still upward. As you can see from the above example MACD Indices indicator never went below zero line & afterwards the upwards Stock Indices trend continued with the MACD Indices indicator maintaining above Zero line & continuing to move upward.
During ranging Stock Indices markets Stochastic Oscillator Stock Indices indicator will give the fastest Stock Indices trading signals which are prone to whipsaws. This is why stochastic oscillator indicator is best combined with other Stock Indices indicators & the Stock Indices signals traded are confirmed by another one or two other Stock Indices indicators.
