How to trade with an oscillator

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The RSI is not a good indicator when it comes to determining future direction. The GBP/USD (chart) is headed to the cluster event below at 1.5841, while the current rate is 1.6000. The wide open stochastics, along with the TL break tells us that.

Trendlines I

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Trendlines, when drawn right are very effective tools.
Before I get started with them, let me say there are right ways and wrong ways to draw a TL, but if one draws it one way, and the other another way, it does not make one way the wrong way. Yet, if neither produces the results it is suppose to, then neither are right. I'll show the first way, then go into a series of diatribes concerning it, and then my favorite way. Yet, it is amazing both ways create practically the same results.
BTW, I am a 100% technical forecaster, so love taking a chart and using it as a crystal ball to peer into the future. I need to be able to see the future. After all a good or bad trade is depended on it.
Also, I do not subscribe to cliches like "The trend is your friend". I'm long on the GBP/USD right now, and it is against the trend, and I'm about to pick up 100 pips on it.
Okay, enough of all that, I can get off into a tangent quickly, but then I love all this. I joke with my wife, my trading is a close 2nd in my life....to Tucker.

Trendlines are used by Elliot Wave masters as wave counts in the trend. I'll show in an eventual post how the last UP was a perfect 5-wave count, and how it bounced off the upper TL, which is not posted here.
Notice on the chart the recent action. The TL was broken through. Also notice it was, by comparison a large candle that took it out. That is the nature of a TL breakout.
Next question: Why am I long? Serving as a confluence of other indicators and a particular event that is the nature of a TL breakout is why I went long. You have a breakout, and then an eventual correction that corrects back to the TL or at least close to it. That is the point to go short. That is what I am waiting on. As a confluence, the tenken is near the TL, so that is also going to be formidable R for a low risk short down to 1.5840. (Save that comment somewhere just in case you doubt me.)
So TL's:
1. Break is a long candle.
2. A corrective process is necessary back, at least close to it.
3. Afterward, the trend officializes.

Stops:
Once the TL is broken, the recent peak is a good point.
Once it gets back in the DOWN at circa 1.6122, that becomes the new peak, which makes it the new stop.
In other words, hit it just right, and you can have a stop at breakeven just hours or even minutes into your trade.
What that also does is free up space to look for another trade.

Targets:
This depends on your indicators and past events. There is chart support at 1.5841, which is also the top of the cloud and the previous kijun.
Measuring the nature of the DOWN will also have a strong determination where it will go, so adjustments may be necessary.

Trendlines II

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This is the same chart except the TL was drawn differently. It was traced over the SD. Simply put, with SD TL's, you draw them from the dip to the 1st peak to the 2nd dip, then let the computer math do the rest.
What I like here is that tracing the SD's, the top TL is plotted automatically. This also helped in a trading decision I made to short the USD/JPY recently. It hit the top TL, I entered, and cashed the pips in today.
Within the Elliot Wave mindset, you can distinctively see the waves within the UP. !st up, 2nd down, 3rd up, 4th down, 5th up. After waves, it also means that UP is due to be corrected. The bottom TL marks the rate of the uptrend, and in a 5-wave count, it means the TL has been hit at least 3 times, which means the line is also losing its elasticity, or the ability to reject price. Eventually, it gives out, and price just caves through.
With BB's, the SD is measure in typical SD fashion (Long story for now.). In an SD channel, when the extremity is broken price just takes off. We got the long candle when the typical TL was broken, we are also going to get one when the SD channel is broken.

In summary, an SD channel connects the lst low points of an UP, or the 1st 2 high point of a DOWN, which should also take into context the 1st UP in an UP, and vice versa.
Channels can also be drawn in sideways markets. This is where it would pay to have a confluence of events working for you. After all, if another part of the methodology is showing the break one way or the other, then enter at the opposite side it will break, be patient, wait for it to break, as it will also be a huge break, and then collect your pips.
It was in noticing that on my EUR/GBP trade that I am still short on. It hit the top of the channel, I went short, and it has been a good ride, up to now, as the trade is up close to 100 pips.

Hi ST Sir!

Studiying your thread... Its nice and very helpful...

I have one query... About the situation of Stochastics, in Over Bought/ Sold Zone.

When we should consider that Stochastics is in over bought/ sold zone?

When both the 'k' and 'd' line are in ob/ os zone? or simply 'k' line in the ob/os zone?

The same for the exit of Stochastics from OB/ OS Zone...

If we wait for both the lines, many times what happens that 'k' line has made exit from ob/os zone and 'd' line is still in ob/ os zone... (In the right side of the image attached, the 'd' line enters in OS Zone after the exit of 'K" line, with the cross over.)

May be this is a very simple situation and silly question, but Such sitiations confused me a lot... and and this clerification can make a positive impect on trading.

I have attached a image...

Thanks and Regards.

Deepanshah, ideally, you ant both over 85 or under 15 (Not the 80 and 20 stereotypes.). When they cross in that territory, that is your signal, but remember, that is in viewing the indicator as a standalone. You won't always get your desire result, and it seems indicative with the chart you posted. There is a crossover in OB, but an extremely weak move.
There are numerous reasons for this.
1. Keep in mind an oscillator is just that--it oscillates, even though, IMO, the stochastics is the best of them all. Based on that, as a standalone you could get false signals. This is another reason to not have your upper and lower lines set to 80/20, but 85/15. This cuts down on the possibility of false signals.
2. You need to know what is going on with other TF's. If you get the picture perfect cross on the hourly, but the 4-hour is wide open, then the cross on the hourly may only yield a sideways motion, as per your chart.
3. Unless you understand the rhythm and flow of the markets you are trading on all TF's, then you cannot use the stochastics as a crossover. I admit to be a student of the markets and copious indicators, but I could never use the stochastics as a standalone. In other words, just because it crosses does not mean it is time to enter. Look to other instruments within your methodology that agree as a confluence for entrance.
As an example, the 4-hour was OS on the EUR/CAD. It alerted me. My WS1 was at 1.3278. t was also camped at the bottom of the weekly cloud, where the tenken was acting as support. Don't need to think about that one anymore. I hit the buy button, and it is now doing well for me.

4xpipcounterSir, thanks for your reply... I am not using stochastics as stand alone indicator... I am very much new to the world of Technical Anyalysis... I am trying to learn it with the help of seniors like you....

Right now, I am using only BB and stochastics... My understanding of Stochastics is much less... that's why I asked.

Now, abt what you explained....


You suggested to have the Zone of 80 to 85 and 15 to 20 instead of traditional 80 and 20 mark... Its better...

But what I want to know is abt the 'k line and 'd' line... Sometimes both move differently... When we shold consider the stochastics in OB / OS Zone? When both 'k' line and 'd' line are there in OB/ OS Zone? or Only 'k' line enters in that Zone?

The same abt the Exit from that Zone....

Thanks and Regards...

Hi Deepanshah,

I think Post no 4 &5 of this thread should answer your questions.

Deepanshah, I responded earlier, but some how the previous one did not post.
I should have been clearer. I guess I did not mean using the stochastics as a standalone indicator, but a standalone indication. In other words, just because you get a crossover in OB/OS territory that does not necessarily signal a trade.

The totalistic makeup of the stochastics is such that a true signal from it can only be derived when both the d and k indicators are OB and there is a cross. This is why the slower line is called the signal line. There is no "signal" unless it is OB or OS. The value needs to cross the signal in order to add "value" to the position.

My little twist on the semantics, but I hope it helps.

BTW, I also use the stochastics as a momentum indicator, but hat has nothing to do with OB/OS signals.

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I'm a little off on my called reversal for the GBP/USD, but I'm posting this live chart to show what I mean with regards to the TL's and the nature of them.
The blue lines are the ones drawn from the SD channel. The chartreuse line is drawn from the 2 swing lows. I mentioned earlier that price action will be contained under the TL, yet, we see a perfect bounce off the SD channel. If the TL is right, this circa area has to be the end of the UP, and we will eventually get a strong move on the other side of the SD channel. We will know the exact outcome before the week is out.
The aforesaid scenario should hold true, and is gives us something to watch live before the week is out.

Funny thing, it just dawned on me. I got off topic with the TL posts. TL's are not oscillators. Sorry, I'll have to behave myself. I get carried away, y'know.

ST and other guys, thanks for directing me to this thread in chat.. i have become engrossed with it. But it's a long long thread and I am only page 8 still. I have already started looking at stochastics. I guess it will take me a few months to have some degree of confidence in my learning of this ONE indicator.

When I add study (Stochastics) in my Trade Tiger, it asks me for 4 parameters

1) Average type (S, E, T, V, W)
2) Average period
3) %K period
4) %K slow

The default values are Average type - S and 5, 3, 5.

You have recommended 8, 3, 4 .. I tried both and it seems that 5,3,5 gives more buy/sell signals than 8, 3, 4.. I have also found that having a moving average line (S 15), as an additional indicator, helps with decision making (though I am only doing paper trade still). I am attaching a graph (NF 5 min) showing the same. 8,3,4 gave no buy/sell signals today, as per this chart.



Also, I know it sounds silly, but what are these different kinds of averages? S is simple average, E is exponential.. but what the dickens are TVW types of averages

I really have no words to thank you guys.