Schaff Trend Cycle Indicator

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Introduction to the Schaff Trend Cycle Indicator

The Schaff Trend Cycle Indicator is a custom forex oscillator that combines MACD and Stochastic into one trading tool. Applying that formula results in reduced lag, less noise, faster reaction to trend changes. It simply provides reliable and early trading signals to forex traders. This indicator calculates two different methods to determine the trend direction changes — MACD and Smoothed Stochastic Oscillator. The readings of the indicator fluctuate between 0 and 100. The Schaff Trend Cycle was introduced in 2008 by Doug Schaff, who assumed that the currency trends accelerate and decelerate in cycles.

The Schaff Trend Cycle Indicator fits all kinds of timeframes and currency pairs. It is displayed in a separate window placed just below the main trading chart. The default settings can be modified directly from the input tab. Feel free to experiment with the settings and parameters to fit your personal preferences.

How does it work? How to apply in trading?

Trading Rules Explanation

The Schaff Trend Cycle Indicator is obviously an oscillator, so it indicates overbought and oversold states of the market. New forex traders can benefit from the trading signals provided by the Schaff Trend Cycle as they are easy to identify and follow. However, advanced forex traders can try the Schaff indicator in conjunction with some other forex technical analysis indicators. For example, a combination of an overbought/oversold oscillator with a trend-following indicator should give very profitable results.

Buy Signal

Follow these steps for a long trade:

The Schaff Trend Cycle oscillator reaches oversold area (below 25 level)
Then oscillator line reverse and rose above 25 level
Price swings higher from recent low swing
Buy trade is triggered after the above conditions are met
Signal is valid as long as Schaff Trend Cycle stays above 75 level
Set stop loss a few pips below the last low point of the market
Take profit or exit trade whenever the Schaff Trend Cycle leaves the overbought area or use your own preffered method of trade exit

Schaff Trend Cycle Indicator Example of Buy Trade

Sell Signal

Follow these steps for a short trade:

The Schaff Trend Cycle oscillator reaches overbought area (above 75 level)
Then oscillator line reverse and decline below 75 level
Price swings lower from recent high swing
Sell trade is triggered after the above conditions are met
Signal is valid as long as Schaff Trend Cycle stays below 25 level
Set stop loss a few pips above the last high point of the market
Take profit or exit trade whenever the Schaff Trend Cycle leaves the oversold area or use your own preffered method of trade exit

Schaff Trend Cycle Indicator Example of Sell Trade

As always, to achieve good results, remember about proper money management. To be a profitable trader you need to master discipline, emotions, and psychology. It is crucial to know when to trade, but also when not to trade. Avoid trading during unfavorable times and market conditions like low volume/volatility conditions, beyond major sessions, exotic currency pairs, wider spread, etc.

Main Parameters

MAShort (default = 23) — the period of the fast moving average for the MACD line calculation. Should be less than MALong.
MALong (default = 50) — the period of the slow moving average for the MACD line calculation. Should be greater than MAShort.
Cycle (default = 10) — the length of the cycle in chart periods. The resulting cycle is twice as long because two stochastics are calculated consequentially.

Formula

The formula for STC is calculated in the following order. In the beginning, the 23-period and the 50-period EMA and the MACD values are calculated:

EMA1 = EMA (Close, Short Length);

EMA2 = EMA (Close, Long Length);

MACD = EMA1 – EMA2.

In the second step, the 10-period Stochastic from the MACD values is calculated:

%K (MACD) = %KV (MACD, 10);

%D (MACD) = %DV (MACD, 10);

Schaff = 100 x (MACD – %K (MACD)) / (%D (MACD) – %K (MACD)).

How to set up the Schaff Trend Cycle indicator in MT4?

Installation Guide

Download the Schaff Trend Cycle.rar archive at the bottom of this post, unpack it, then copy and paste the Schaff Trend Cycle.ex4 or Schaff Trend Cycle.mq4 indicator files into the MQL4 folder of the Metatrader 4 trading platform.

You can gain access to this folder by clicking the top menu options, which goes as follows:

File > Open Data Folder > MQL4 > Indicators (paste here).

Now go to the left side of your MT4 terminal. In the Navigator find the gauge name, right-click it and select Attach to the chart.

Bottom Line

The Schaff Trend Cycle indicator is well worth adding to your trading collection but remember about having realistic expectations. Just like any other technical analysis tool, is not capable of providing accurate signals 100% of the time. Thus, this forex indicator provides false signals occasionally. Its performance will vary significantly depending on market conditions. Feel free to develop your own trading system based around it.