What is the Schaff Trend Cycle and Its Benefits | Motilal Oswal
What is the Schaff Trend Cycle and Its Benefits
- In the fast-paced world of trading, having access to solid technical indicators can increase your chances of success.
- The Schaff Trend Cycle, or STC, is one such effective instrument.
- It provides traders with significant insights into market movements and potential trade signals.
- In this post, we will look at the STC, how it is calculated, and how traders can use it to improve their decision-making process.
Open Trading Account and Start Trading!
What is the Schaff Trend Cycle?
- The STC is a technical indicator used to determine market trends and overbought or oversold conditions.
- Doug Schaff created it as an improvement to the popular moving average convergence divergence (MACD) indicator.
- The STC oscillates between 0 and 100, with values greater than 75 suggesting overbought conditions and values less than 25 indicating oversold conditions.
How Do I Calculate the Schaff Trend Cycle?
To determine the values of the Schaff Trend Cycle, follow the given steps:
- Calculate the MACD using two separate price data exponential moving averages (EMAs).
- Calculate the true range, which quantifies the volatility of the market.
- Make a raw cycle by combining the MACD and true range values.
- To get the final STC numbers, smooth the raw cycle with a weighted moving average.
How Do I Interpret the Schaff Trend Cycle?
- When the STC crosses over the oversold barrier (25) and below the overbought threshold (75), it provides purchase signals.
- Divergences between the STC and price movement can also be used by traders to identify probable trend reversals.
What are the Major Benefits of the Schaff Trend Cycle?
STC provides various benefits, such as:
- Trend identification: The STC gives a clear picture of the market's current trend. This allows traders to match their positions to the market's overall direction.
- Early entry and exit positions: The STC helps traders identify probable entry and exit positions ahead of price reversals. This gives the traders a competitive advantage in trade timing.
- Reduced latency: The STC has less latency than standard oscillators, thus making it more responsive to changes in market conditions.
- Versatility: Since the STC may be applied to numerous timeframes and asset classes, it's considered useful for traders across a variety of financial markets.
- The Schaff Trend Cycle, or STC, is a useful technical indicator that helps traders identify trends and early entry or exit signals.
- Traders can make more educated decisions and improve their trading results by understanding its computation and comprehending its readings.
- However, to ensure a well-rounded approach to trading success, the STC must be used with other analysis tools and risk management tactics.
Related Articles: Tick Size in Trading: Understanding the Smallest Price Movements | What Does a Paper Umbrella Candlestick Indicate | How to Find Stocks to Swing Trade | Ultimate Guide to Positional Trading