Schaff Trend Cycle Indicator
Platform: MT4 Type: Oscillator Last update: September 28, 2024The Schaff Trend Cycle Indicator for MT4 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.
Understanding the trading rules for the schaff trend cycle
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
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
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)).
