What is the Schaff Trend Cycle Indicator?
The Schaff Trend Cycle (STC) indicator is a technical trading tool developed by Doug Schaff in 2008. It is an oscillator that uses a combination of the moving average convergence/divergence (MACD) and a double exponential smoothing to determine the short-term trend of the market. STC is a forward-looking indicator and provides signals much faster than MACD, making it particularly useful for day traders and scalpers. In order to create a buy or sell signal, the STC combines the MACD and the double exponential smoothing together to create a trend outlook for the market.
Calculating the STC
The Schaff Trend Cycle utilizes a 26-day and 12-day moving average crossover along with the double exponential smoothing of a 9-day exponential moving average (EMA) of the MACD. It then divides the EMA of the MACD by the 9-day EMA of the MACD to create the STC line. When the STC line crosses above 0.50, then it is signaling a buy signal, and if the STC line crosses below 0.50, then it is indicating a sell signal. The quicker the STC crosses the 0.50 boundary, the more likely it is that the market is in a current trend.
Implementing the STC
The Schaff Trend Cycle is implemented in Forex by using the “barrier exit.” When a currency pair crosses the 0.50 barrier of the indicator, it signals a buy or sell signal and then the trader takes the necessary position according to that signal. The barrier exit helps to increase trading opportunities and reduce the risk of overtrading. It also helps to reduce trading losses increases profits. The STC is also used in the stock market for intraday trading, but traders must take into account the different volatility levels and trading strategies that are used in the stock market.
The Schaff Trend Cycle is a helpful trading tool to use in the forex market. Not only does it give traders the ability to trade faster than traditional indicators, it also helps to reduce the risk of overtrading and increases profits. With its combination of the MACD and the double exponential smoothing, the STC is a powerful indicator of a current trend and its 0.50 barrier exit helps to increase the trader’s edge.
Schaff Trend Cycle Calculation (Formula) Explained
The Schaff Trend Cycle (STC) calculation is based on moving average convergence divergence (MACD) and on stochastic oscillator data. The formula calculates the short and long exponential moving averages (EMA) from the typical closing prices. Generally, the short and long terms are set to 23 and 50 respectively for the STC calculation.
The formula to calculate the Schaff Trend Cycle (STC) is expressed as follows: 100 x (MACD – %K (MACD))/(%D (MACD) – %K (MACD)). To analyze the chart, the STC values will appear in the windows next to the price. If the STC values are increasing, it means the trend cycle is on the rise whereas if the values are decreasing, it shows that the trend cycle is fast deteriorating.
How to Attach the Schaff Trend Cycle Indicator?
This indicator can be attached to the technical chart of the forex pairs. Most trading platforms offer this type of indicator and attaching it to the chart is fairly easy. The trader as to simply search for ‘Schaff Trend Cycle’ under the indicators and attach the STC indicator to the chart.
Once attached to the chart, the trader can make adjustments to the indicator settings such as the increase or decrease the period of the EMA or any other setting.
Uses of the Schaff Trend Cycle Indicator
The most important role of the Schaff Trend Cycle indicator is that it helps to identify the trend momentum and gives a timely buy/sell signal. Traders can use this information to open buy or sell orders in the forex market. It helps the traders to understand the trend direction and improve the entry and exit points for each trade.
The STC indicator is most suitable for short-term and intraday trading. It isn’t as reliable as the long-term trading due to the fact that it is based on intraday data. The STC indicator gives the most accurate signals in 1- to 4-hourly timeframes.
Apart from providing buy/sell signals, the indicator also helps in identifying overbought and oversold conditions in the market. It reflects a more accurate representation of the market trend and could be used along with other indicators for cross-confirmation signals.
The Schaff Trend Cycle indicator has been used by many to improve their trading performance. It could also be used in various other financial markets to identify trends, entry and exit points. As the STC considers fewer parameters, it eliminates the possibility of missing important signals.