How to trade with an oscillator

[4xpipcounter]

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I noticed I missed out on much of the conversation in this thread.
Krishere, the reason you can't thank Smartrade for some of his excellent insights is because he has only made one post in this thread since July, so his posts are too old to thank him.
I wouldn't say stochastics is a cornerstone of my methodology, but I sure like the indicator for various reasons. I use it as a momentum indicator, and it needs to be used as a confluence with other elements of my methodology before I would act on it.
Someone mentioned how the slower line lags the faster line by a few candles after it gets to the OB/OS condition. The signal comes when there is a crossover, and hopefully both lines are above 85 or under 15 when that happens. It is an oscillator, so by its nature it lags, but not as much as MACD, which is why I like it more than MACD.
Many times price not react to the OB/OS condition, as Smartrade had pointed out (Ala remaining 3-6 candles in the OB/OS territory.), because of what is going on in higher TF's. After all, the hourly might be OB, but if the 4-hour is wide open still and at the median, that is not the time to take that trade. It would have been if the higher TF reasonably agreed.
It is still best to use the stochastics as a confluence with other indicators.
I took a short on the EUR/CAD today. The accompanied chart shows the stochastics OB, divergence, and even curled over. That still was not enough to convince me. When it hit the top of the 4-hour cloud, and there were some peripheral indications on the daily, that convinced me.

 

[4xpipcounter]

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The RSI has a bit of an irony to it. It is not an indicator you would use for OB/OS conditions. If you plot the 80/50/20 lines on your chart, then watch what happens when the indicator goes above 80 or under 20. The best thing to do is hold on to your position for about 2-3 more candles. There is usually a strong move in the same direction once it gets there. Also, if you are in, for example a strong uptrend, wait for the indicator to hit 50, then get ready to go long. If it broke a TL on the way there, then there is probably a trend change, so go short.
The chart of the GBP/USD points out the things I mentioned. The line I drew shows when the RSI dipped under the 20 line, then price continued to drop 5 more candles.
Also, notice during the strong uptrend how the RSI got close to the 50 line then went back up. When price finally ripped through it was when it was confirmed of the trend change.
Also note there are not too many examples of price dipping under 20 or over 80. It is just something you have to be ready for.

I read a good portion of this thread, but definitely not all of it. Pardon me if I got repetitive.

 

[Smart_trade]

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The RSI has a bit of an irony to it. It is not an indicator you would use for OB/OS conditions. If you plot the 80/50/20 lines on your chart, then watch what happens when the indicator goes above 80 or under 20. The best thing to do is hold on to your position for about 2-3 more candles. There is usually a strong move in the same direction once it gets there. Also, if you are in, for example a strong uptrend, wait for the indicator to hit 50, then get ready to go long. If it broke a TL on the way there, then there is probably a trend change, so go short.
The chart of the GBP/USD points out the things I mentioned. The line I drew shows when the RSI dipped under the 20 line, then price continued to drop 5 more candles.
Also, notice during the strong uptrend how the RSI got close to the 50 line then went back up. When price finally ripped through it was when it was confirmed of the trend change.
Also note there are not too many examples of price dipping under 20 or over 80. It is just something you have to be ready for.

I read a good portion of this thread, but definitely not all of it. Pardon me if I got repetitive.

Thanks for your inputs 4xpipcounter. Would request you to post your charts so that we can appreciate the important points brought out by you.

Smart_trade

 

[SwingKing]

I think everything starts with the selection of right kind of asset/stock/forex pair.

What I mean is, all that we discuss about indicators and oscillators seems to work well on market vehicles which tend to move. For e.g. something like a NTPC/Colgate would be very difficult to trade with based on oscillator and indicators principles. Whereas something like a BankNifty/DLF/Hindalco would be a perfect instrument for applications of various principles.

Bottom line is, when an asset moves, we profit. If an asset is less volatile/low beta etc, it becomes more difficult to extract points out of it.

ST, accept my apologies if this post is out of context. But, since we are discussing oscillators and indicators, the way to use them correctly is to first identify the right kind of instrument. This is just the way I think.

Tc

 

[Smart_trade]

I think everything starts with the selection of right kind of asset/stock/forex pair.

What I mean is, all that we discuss about indicators and oscillators seems to work well on market vehicles which tend to move. For e.g. something like a NTPC/Colgate would be very difficult to trade with based on oscillator and indicators principles. Whereas something like a BankNifty/DLF/Hindalco would be a perfect instrument for applications of various principles.

Bottom line is, when an asset moves, we profit. If an asset is less volatile/low beta etc, it becomes more difficult to extract points out of it.

ST, accept my apologies if this post is out of context. But, since we are discussing oscillators and indicators, the way to use them correctly is to first identify the right kind of instrument. This is just the way I think.

Tc

Fully agree with you ....scrip has to move for us to make any money from it....

You are most welcome to share your views here.....

Smart_trade

 

[nillohit]

Request advice !!

Dear Sir,
At present I am working 9-5pm. My intention is to trade in NIFTY future (positional trading). The strategy I would like to adopt is NIFTY TRADING SYSTEM by Bramesh , Which is based on 5 EMA, 20 SMA crossover with MACD.I would like to have your advice whether I can carry on this trading doing my office job during market hours.
Regards, Nillohit

 

[4xpipcounter]

Re: Request advice !!

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Nillohit, the best to determine if it will work is plot it on the chart, and then watch it live, and trade it on your demo account.
These MA crossover systems are what these salesman who don't know how to trade like to push. Notice on the chart how good, overall this system appears. Price stayed under the 5 EMA on most of the chart. The thing is I can almost train Tucker (in the pic) to trade a market like this. It's like, "Put your paw on the sell button and press down."
It is not often that markets trend like this, so what do you do when they don't?
Look at the chart. When it is not trending, the white encircled areas are showing false breaks. The red is showing a signal to get out....but then, do you? The pink below is showing a long signal, but after The Move. It was also after The Move you would have had a signal to get out.
My challenge to you line everything up on your demo, and then trade it. It is only demo dollars if you lose it all.
I forgot to add the MACD, which is why I did not address it. The principle is still the same.

Dear Sir,
At present I am working 9-5pm. My intention is to trade in NIFTY future (positional trading). The strategy I would like to adopt is NIFTY TRADING SYSTEM by Bramesh , Which is based on 5 EMA, 20 SMA crossover with MACD.I would like to have your advice whether I can carry on this trading doing my office job during market hours.
Regards, Nillohit

 

[Smart_trade]

Re: Request advice !!

Dear Sir,
At present I am working 9-5pm. My intention is to trade in NIFTY future (positional trading). The strategy I would like to adopt is NIFTY TRADING SYSTEM by Bramesh , Which is based on 5 EMA, 20 SMA crossover with MACD.I would like to have your advice whether I can carry on this trading doing my office job during market hours.
Regards, Nillohit

Nillohit,

You can certainly trade a position trading method based on daily charts but I would like you to consider the following :

1) MA crossover and MACD methods work great in trending period...but they are really bad in sideways/choppy markets as the averages criss cross and you get tossed around....consider how will you handle this period ?

2) On daily charts your stops will be large....can you handle those large stops ?

3) Very carefully backtest the method, see what whipsaws you encounter, how do you propose to handle them.....also do some paper trading in walk forward in real time period.....convince yourself that you have an answer for all problems....and you can tackle them.....

Real trading is much different than seeing charts and trades on paper....prepare yourself well and then get into real trading.

Good Luck....

Smart_trade

 

[4xpipcounter]

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I posted one example of the GBP/USD earlier. Let me also say that RSI moving above 80 or under 20 is not like a candy store. I often have made the analogy that trading is like going to the candy store. There are so many choices. That is not the case in using the RSI in this matter. I searched 6 pairs, all timeframes to come up with 3 examples. It was cursory, but still when you find them, I've never seen example of it not working.
The circled areas correspond to the candle and the RSI cross. Half the candle got cut off on the EUR/USD intentionally, because the crossover happened in the middle of the candle. I remember when it happened.
When I got the time, I'll post some more examples of how to use the RSI that yield more trades, as well as post some examples of the stochastics.
All this is reminiscent of 2004 when I started trading. It seemed like for a long time I was in Indicators 101.

Thanks for your inputs 4xpipcounter. Would request you to post your charts so that we can appreciate the important points brought out by you.

Smart_trade

 

[4xpipcounter]

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In jest, I once cracked a comment that even Tucker (In pic.) could trade a sharp downtrend. But, the question, is how do I get in a trend without feeling like I am chasing it. There are lots of answers, but RSI presents one of them.
Once the downtrend was confirmed by price action the indicator stayed under the 50 level. In returning to the UP, the sharp UP candle forced the indicator back over the 50 mark. After that candle, the market went sideways, and even a bit south. Price action really took off to the upside was the indicator hit or came very close to the 50 mark.

As far as the future is concerned, notice how the indicator hit the 80 mark. We can expect it to continue to drop to the 50 mark, and take price action. Trading decisions are always done best with a confluence of other indications, so if the trader (I am short on my real account. This is a chart of my demo.) was to make a determination where to take profits at, the tenken would be good at 83.14, or the rising TL at circa 82.93.
Using those as a confluence, if 82.93 is broken, price will accelerate and carry the RSI back under 50.