The Schaff Trend Cycle (STC) identifies trend momentum. The STC is created by running the difference between two exponential moving averages (a MACD Line) through a stochastic algorithm. The resulting oscillator measures when trend is accelerating or decelerating, showing a cycle measure of trend.
Like most stochastics, the oscillator is bounded between 0 and 100. Buy and sell lines are drawn at 20 and 80 in the STC chart panel. The indicator rising above the buy line can be used to confirm trend cycle lows. The indicator falling below the sell line can be used to confirm trend cycle peaks.
The STC tends to be smoother and suffers fewer whipsaws than the regular stochastic. The STC also reaches the 20 line and 80 line more often, giving clearer ideas of when to enter and exit positions.
When the Schaff Trend Cycle is falling, trend momentum is falling and prices tend to stabilize or follow the trend cycle lower. When the STC is rising, trend momentum is rising and prices tend to stabilize or follow the cycle higher.
A powerful way to use this is to combine the STC with a trend direction indicator to identify both trend momentum and direction. In this instance I am using the EMA(23) as an indicator of trend direction. Consider trades when trend momentum and direction are in harmony.
Note: The settings used here (period, short ema, long ema) are the default settings used by Doug Schaff. The advantage to this type of indicator is that it is responsive without generating a lot of whipsaws. However, to make it better, one should be using an adaptive cycle period - unfortunately, SF code does not allow for the use of a variable in these types of calculations. If it did, this could be much more useful. Oh well.
*** Disclaimer *** StockFetcher.com does not endorse or suggest any of the securities which are returned in any of the searches or filters. They are provided purely for informational and research purposes. StockFetcher.com does not recommend particular securities. StockFetcher.com, Vestyl Software, L.L.C. and involved content providers shall not be liable for any errors or delays in the content, or for any actions taken based on the content.