How to trade with an oscillator

[4xpipcounter]

Timepass, I use the stochastics as a part of my methodology for the last 6 years. The thing to remember is that it should not be used as a standalone indicator. You are not looking for the stochastics to yield buy and sell signals, but rather fro it to agree or form a confluence with other indications. Also, the stochastics cannot be backtested as it is a lagging indicator. In addition, it may show one thing on one TF, but be aware of what it is saying on others. You might get a buy or sell signal on the hourly, but strong momentum is pushing the opposite way on the 4-hour.
I'll also give you a strong confluence in using just the stochastics, and this is very rare. If it is OB/OS on 3 consecutive TF's, then that is as good as any of a sign for a reversal. Wait for the crossover on the lower, and then enter.

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.

 

[timepass]

G'morning 4xpipcounter.

I understand that it is not a standalone indicator and needs confirmation with other indicators. Post no. 10 and post no. 20 herein mention the conditions when it may be used to initiate a trade. To that I'll add your proviso of 3 consecutive readings in OB/OS zone.

You will notice in my graph that I have added S15 moving average as additional indicator.. (well, that's the limit of my learning at this stage.. )..

You said you have been using it for 6 years now. What parameters do you use ? Which type of average, Average period, %K period and %K slow ? Also, what's your opinion of the parameters used in my graph - Simple average and 3, 5, 3 ?? These are the default values given in my program.

 

[Smart_trade]

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.

Hello Timepass....

You can try with different settings and find out the one which works best for your timeframe and your market......also OB/OS levels of 35/65 or 70/30 or 75/25 or 80/20 all depends on how volatile your market is and what settings suit the market most....there is no hard and fast rule on that....

I had considered all simple moving averages...

You can use a trendline , pivot high/pivot low, your average line etc to fine tune your entries.....the oscillator qualifiers I had mentioned take care that you dont selll short in a strong uptrended market and you dont buy long in a strong downtrending market. The purpose of these oscillator qualifiers is precisely that.

If you use Stochastics in conjunction with any of the techniques , the chances of trades being successful are enhanced considerably.

Smart_trade

 

[4xpipcounter]

Timepass, Smartrade nailed it.
I use the 5,5,5. I have experimented with all different settings. Over the years, I have found, for whatever the reason, that 5,5,5 is most effective (Just my opinion talking here, with no tradeable principle.).I ma right now experimenting with 14,3,3. I always leave my favorite 5,5,5 up so I can see how others act side-by-side with my favorite setting. If I find something more effective, then I'll be glad to get rid of 5,5,5.
I'm sure you're aware of this (BTW, I've read many of your posts, and my assumption from the beginning was that you knew not to use the stochastics as a standalone, but was also why I told you about the 3 consecutive TF scenario.), but in watching different setups on the stochastics, you do not want it to yield buy and sell signal just for the sake of yielding them. The reason I like the 5,5,5, is that when it becomes OB/OS, it gives a much truer look of the price action. Your algorithms will essentially be the same on all settings. What you want is the truest look when it becomes OB/OS, and you don't want it to register that just to give you a signal.
IMO, I don't like %D to be greater than %K because the lines become too noisy. I like the smooth effect. Again, I don't like it to be too quick to crossover, and I do not like it to be too quick to follow price.
The higher the final number the smoother the algorithm will be. Something like 5,5,15 will most spend of its like at the median. The nice part is if it becomes OB/OS, that should make you blow the horn on it.
If you were asking my opinion between the 3,5,3 and the 8,3,4, then I personally like the 3,5,3 better. This is because it gives more truer signals. The first crossover was not quite OB, and the small move matched the condition. The first OB crossover came with plenty of warning before the move. It created a divergence which is signaling what would ultimately happen.
The OB crossover signaled the move. A huge spike came but the stochastics was still divergent. The same move the 8,3,4 gave no idea what was going to happen. That is the thing I don't like about it is that it is all over the place.
I know there are proponents of the 8,3,4, and that's fine. That was only my opinion.
The stochastics can be used not only for OB/OS indications, but also for price divergency, and used as a momentum indicator. I have chosen to get the maximum use out of the indicator, and that is another reason I prefer a smoother look, with more truer indications of OB/OS conditions.




TE=timepass;531171]G'morning 4xpipcounter.

I understand that it is not a standalone indicator and needs confirmation with other indicators. Post no. 10 and post no. 20 herein mention the conditions when it may be used to initiate a trade. To that I'll add your proviso of 3 consecutive readings in OB/OS zone.

You will notice in my graph that I have added S15 moving average as additional indicator.. (well, that's the limit of my learning at this stage.. )..

You said you have been using it for 6 years now. What parameters do you use ? Which type of average, Average period, %K period and %K slow ? Also, what's your opinion of the parameters used in my graph - Simple average and 3, 5, 3 ?? These are the default values given in my program.[/QUOTE]

 

[balasoft80]

Hi ST,
I am very new to this forum and TA. So far I have not followed any TA and lost more than what I can. Just recently came to know about this forum and started learning TA. As per your strategy, we should have entered to buy in the highlighted point and but why we didn't enter that time. Please find the attached image

Thanks Much
Bala
I hope I explained what I wanted to clarify.

 

[Smart_trade]

Hi ST,
I am very new to this forum and TA. So far I have not followed any TA and lost more than what I can. Just recently came to know about this forum and started learning TA. As per your strategy, we should have entered to buy in the highlighted point and but why we didn't enter that time. Please find the attached image

Thanks Much
Bala
I hope I explained what I wanted to clarify.

No Bala......never enter a buy trade after a strong Red WRB (Wide Range Bar).....market needs time to dissipate the large bearish pressure created by a WRB.In this process market tests the bottom again ,sets up what is known as divergence. This chart was posted to demonstrate positive divergence.

Better place to go long was after we got a positive divergence ( double bottom shown by blue horizontal line in my chart....then we had 2-3 small sideways bars and then the high of this sideways range is taken out......that is an ideal entry point for long trade.

Thanks and Best wishes,

Smart_trade

 

[balasoft80]

Thank you so much for your prompt answer. I hope I will ask more questions hereafter. I hope you don't mind it. Anyways thanks a lot

 

[4xpipcounter]

Balasoft, trading would be easy if it were that cut-n-dry. I have seen quadruple divergence. In other words, 4 sets of lower lows on the stochastics while there was 4 sets of higher highs in an uptrend. Yet, divergence is highly pertinent give the situation to use it in.
The highlighted oval portion you shared was no more than a higher high. It does not mean it was a signal for an entry.
Here's a little hidden secret while taking the initial move at face value. That move was 38.2% of the entire downmove, so the Fibo enthusiasts were made real happy over the move.
Ichi enthusiasts were real happy because we got the strong move we predicted just under the 4-hour cloud, and then the reversal.

The thing that stand out about the entire move is that a sharp divergence was formed after a good downside foundation was made. The divergence would have been a good trade to grab as many ticks as you could, but the nice thing here was that after the foundation was made, a 1-2-3 formation was in the making. From that point, you would be looking for the previous peak to be take out and for a sharp move.
I got a friend who makes about 3-4 trades per month on the GBP/USD only using exclusively his 1-2-3 setup with all the ideal elements of it in place.

The thing is successful methodologies will produce the same result. I was looking at a break of the 4-hour cloud, combined with the entry into the daily cloud as what was needed to hit the 5687 target, which was on Friday.

Bottom line is do the experimenting on your demo account. Watch for all the different setups you learn about in this forum. Take notes. After several months take all the notes and observations, and then draw your own conclusion, You are going to find that after copious notes and observations, it will even be encumbersome with all the information you gather. It will be up to you to sort it all out, form a methodology, adn then go on to an outstanding trading career.

Hi ST,
I am very new to this forum and TA. So far I have not followed any TA and lost more than what I can. Just recently came to know about this forum and started learning TA. As per your strategy, we should have entered to buy in the highlighted point and but why we didn't enter that time. Please find the attached image

Thanks Much
Bala
I hope I explained what I wanted to clarify.

 

[4xpipcounter]

Unbelievable, you answered the same time I did--lol.

No Bala......never enter a buy trade after a strong Red WRB (Wide Range Bar).....market needs time to dissipate the large bearish pressure created by a WRB.In this process market tests the bottom again ,sets up what is known as divergence. This chart was posted to demonstrate positive divergence.

Better place to go long was after we got a positive divergence ( double bottom shown by blue horizontal line in my chart....then we had 2-3 small sideways bars and then the high of this sideways range is taken out......that is an ideal entry point for long trade.

Thanks and Best wishes,

Smart_trade

 

[4xpipcounter]

Balasoft, you keep the questions coming. The seasoned traders enjoy the questions, because it enables us to talk about what we already know and this helps us as traders. Everyone benefits when you ask questions. The integrity of our answers also help, because we have to be honest with ourselves, and so in turn, we are honest with you.
Notice how Smart Trade and I gave you the same answer, but in different words, and neither one of us knew we were writing at the time. This will also help you as you view the information, with the same answer, but just a bit of a different perspective.

Thank you so much for your prompt answer. I hope I will ask more questions hereafter. I hope you don't mind it. Anyways thanks a lot