Citizen2007
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That may be true. But indicators and oscillators turning does not mean that the market will also be turning.
If this were the case then markets would not be random. Everybody would buy or sell once the indicators/oscillators were at extremes and trading would be lot easier. The element that brings the randomness into the markets is timing.
When a trend is in flow, everything falls into place at the right time, so it continues. Identifying this timing is crucial when using the turning points of these signals. One timeframe may be at an extreme on the highs, while another will show more strength on the upside. Now do you take the signal from the one that is at extremes, or would you wait until the steam had run out of all timeframes?
Whichever option you take, an understanding of these conflicts would help you identify what phase the market is currently in.
If this were the case then markets would not be random. Everybody would buy or sell once the indicators/oscillators were at extremes and trading would be lot easier. The element that brings the randomness into the markets is timing.
When a trend is in flow, everything falls into place at the right time, so it continues. Identifying this timing is crucial when using the turning points of these signals. One timeframe may be at an extreme on the highs, while another will show more strength on the upside. Now do you take the signal from the one that is at extremes, or would you wait until the steam had run out of all timeframes?
Whichever option you take, an understanding of these conflicts would help you identify what phase the market is currently in.
nine
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A 95% chance of reversing .... when?
I assure you that the dow jones has a 99.8% chance of reversing. Because my kiwicator is overbought. Would you like to take a bet (hint, it indicates a 99.8% chance of reversal by the end of 2010)?
Do you know what your indicator actually means? Most people don't. People rave about stochastics without knowing that all they measure is where the close of this bar is relative to a horizontal channel for the last X (=stoch length) channel.
Knowing that ... would you say that if the stoch was OB it has a 95% chance of reversing (soon I mean). If you did then all your saying is (say OB= 90%) that when your close of the bar is at channel low + 0.9*(high - low) it has a 95% chance of reversing. Thats like saying that 95% of the time price doesn't break the short term channel. Do you believe that?
I assure you that the dow jones has a 99.8% chance of reversing. Because my kiwicator is overbought. Would you like to take a bet (hint, it indicates a 99.8% chance of reversal by the end of 2010)?
Do you know what your indicator actually means? Most people don't. People rave about stochastics without knowing that all they measure is where the close of this bar is relative to a horizontal channel for the last X (=stoch length) channel.
Knowing that ... would you say that if the stoch was OB it has a 95% chance of reversing (soon I mean). If you did then all your saying is (say OB= 90%) that when your close of the bar is at channel low + 0.9*(high - low) it has a 95% chance of reversing. Thats like saying that 95% of the time price doesn't break the short term channel. Do you believe that?
FXSCALPER2
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It isn't, obviously.
trader_dante
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Just my opinion here but if you are new to trading the single best thing you can do is take every single indicator off your chart and never put them on again. Study the price action and the natural support/resistance areas in the market. This is all you need to make money.
fibonelli
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jayjay121,
Funnily enough at the beginning of learning TA I used to think the same when i saw an oscillator go below 20 and above 80.
What I have been discovering is that the usefulness in a momentum indicator such as stochastics is that it shows divergences with price which you don't see on a price chart. A divergence can be considered as a leading indicator of a change in price momentum.
Whether or not you decide to use indicators, you must throughly learn technical analysis techniques as Trader Dante has said.
Good luck.
F
Funnily enough at the beginning of learning TA I used to think the same when i saw an oscillator go below 20 and above 80.
What I have been discovering is that the usefulness in a momentum indicator such as stochastics is that it shows divergences with price which you don't see on a price chart. A divergence can be considered as a leading indicator of a change in price momentum.
Whether or not you decide to use indicators, you must throughly learn technical analysis techniques as Trader Dante has said.
Good luck.
F
FXSCALPER2
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I can tell you if there is a divergence on MACD, say, by just looking at the price chart.
fibonelli
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Your gift is not yours alone - it's the declining rate of movement up or down compared to the prior swing(s).
An oscillator simply quantifies the divergence as a pretty pattern.
FXSCALPER2
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Your gift is not yours alone - it's the declining rate of movement up or down compared to the prior swing(s).
An oscillator simply quantifies the divergence as a pretty pattern.
And here I was thinking it is a special gift of mine!
Just my opinion here but if you are new to trading the single best thing you can do is take every single indicator off your chart and never put them on again. Study the price action and the natural support/resistance areas in the market. This is all you need to make money.
When you say take all indicators off your charts, do you also include vwap, sma, atr in that statement?
jason
When you say take all indicators off your charts, do you also include vwap, sma, atr in that statement?
jason
nine
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He will. Look at his thread for his charts.
You can see atr expansion and contraction pretty easily if its important. Same applies to where mas are likely to be although personally I like a couple of mas for added support and resistance. What do you do with vwap ... if nothing then it definitely shouldn't be there.
JTrader
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If you look at eg. RSI14, when they reach extreme levels (eg. 30 & 70), i would say its more like a 70% chance rather than 95% chance that price will reverse.
Sure, you might be able to improve this % a bit by fine tuning the 14 bit, and the 30 & 70 etc.......
Sure, you might be able to improve this % a bit by fine tuning the 14 bit, and the 30 & 70 etc.......
Ingot54
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Correct Use of Oscillators
Not certain if you are still around, but this question needs an accurate answer, and so far there has only been waffling around, with no one actually having the knowledge to help you.
Now in case anyone thinks I am an expert ... I'm not - I just know where to find stuff generally, and you can bypass my screed and go directly to the link below for the original un-paraphrased text.
Oscillators belong to either one or the other of TWO classes.
a) Centred Oscillators, like MACD and ROC
b) Banded Oscillators, like Stochastic, RSI and CCI
Centred Oscillators are best used to IDENTIFY the underlying strength or direction of the momentum behind a move.
Banded Oscillators have an ability to IDENTIFY extreme readings.
You will probably not find this in the link below, but it is generally accepted that MACD is more useful in STRONGLY TRENDING markets, to identify a slowing or accelerating trend, or a change in the momentum of the trend.
Stochastic on the other hand, is more useful in NON-TRENDING markets, and you can see them begin to move when there is an imminent beginning of a trend.
But there is a very good place for both RSI and Stochastics, and here is the kicker: Apart from identifying what is referred to as "over-bought" or "over-sold" levels, they actually are VERY GOOD indicators of STRONG trend CONTINUATION. I found this through my own experience, and I imagine so did many of you.
When RSI or Stochastic is registering an over-bought level, it does NOT mean you can enter a "sell" order and just expect to "collect". I once traded CTX on the ASX (Australia) and the Stochastic remained in overbought territory for months at a time, while the price went from around $2.20 to over $20!
The actual time to SELL would have been when the Stochastic dipped through the overbought (80-line) level from above - provided other selling criteria were also met. Keep in mind that sometimes strongly trending instruments go through short "pull-backs" before powerfully resuming their former trend direction.
And so here is where we touch on the secret weapon available within the Stochastic Indicator, available to those who understand how it works.
Here it is:
When an equity, currency, commodity and so on is rallying strongly, but experiences a short pull-back from this direction of trend, Stochastics will dip quickly (temporarily) into an over-sold state.
This is the time to be ready to buy into a rally that is about to resume powerfully (we presume).
If an instrument in a strong rally experiences a pull-back and then resumes, Stochastic will dip into over-sold, and emerge crossing the 20-line from beneath. It is THIS signal you are waiting for to feather your nest!
Similarly, when an instrument is in a strong correction, and experiences a short rally, the imminent resumption of the down-trend is signaled by the Stochastic dipping briefly into over-bought zones,before dropping once again through the 80-line from above.
Mastery of this one simple fact about Stochastic will help you get the very best from an oft-overlooked indicator. Combine this with your new knowledge that an instrument hovering in over-bought/over-sold levels will continue that trend for as long as the Stochastic remains in the >80 / <20 zones respectively, and you are set to both enter good trends during pull-backs, and remain in them for the duration of what is often the most powerful phase of their moves.
Some traders try to complicate their lives by attempting to pick divergences in Stochs and RSI when compared to Price Action, but this is not only an advanced skill, it is also an activity which carries a higher failure rate. Most experienced traders do not bother to split hairs about this - there is other low-lying fruit to be picked before attempting to trade divergences.
Stochastic is a very friendly indicator to have by your side , and it loves to work hard for you. It is uncomplicated, and will not trick you, providing you do a minimum of work to discover its limitations. It will always be there to offer a "second opinion" and believe me - this indicator does not know how to lie. If a move does not occur immediately Stochastic signals a change, you can still be sure that the change is not very far off.
Jason - I hope that answers your question, with enlightenment towards better and smarter trading.
I recommend this link for a full exposition of these and other Indicators, with thanks to the the people at Stockcharts.com - very much worthy of your time to visit.
Introduction to Technical Indicators and Oscillators - StockCharts.com
Hi Jason
Not certain if you are still around, but this question needs an accurate answer, and so far there has only been waffling around, with no one actually having the knowledge to help you.
Now in case anyone thinks I am an expert ... I'm not - I just know where to find stuff generally, and you can bypass my screed and go directly to the link below for the original un-paraphrased text.
Oscillators belong to either one or the other of TWO classes.
a) Centred Oscillators, like MACD and ROC
b) Banded Oscillators, like Stochastic, RSI and CCI
Centred Oscillators are best used to IDENTIFY the underlying strength or direction of the momentum behind a move.
Banded Oscillators have an ability to IDENTIFY extreme readings.
You will probably not find this in the link below, but it is generally accepted that MACD is more useful in STRONGLY TRENDING markets, to identify a slowing or accelerating trend, or a change in the momentum of the trend.
Stochastic on the other hand, is more useful in NON-TRENDING markets, and you can see them begin to move when there is an imminent beginning of a trend.
But there is a very good place for both RSI and Stochastics, and here is the kicker: Apart from identifying what is referred to as "over-bought" or "over-sold" levels, they actually are VERY GOOD indicators of STRONG trend CONTINUATION. I found this through my own experience, and I imagine so did many of you.
When RSI or Stochastic is registering an over-bought level, it does NOT mean you can enter a "sell" order and just expect to "collect". I once traded CTX on the ASX (Australia) and the Stochastic remained in overbought territory for months at a time, while the price went from around $2.20 to over $20!
The actual time to SELL would have been when the Stochastic dipped through the overbought (80-line) level from above - provided other selling criteria were also met. Keep in mind that sometimes strongly trending instruments go through short "pull-backs" before powerfully resuming their former trend direction.
And so here is where we touch on the secret weapon available within the Stochastic Indicator, available to those who understand how it works.
Here it is:
When an equity, currency, commodity and so on is rallying strongly, but experiences a short pull-back from this direction of trend, Stochastics will dip quickly (temporarily) into an over-sold state.
This is the time to be ready to buy into a rally that is about to resume powerfully (we presume).
If an instrument in a strong rally experiences a pull-back and then resumes, Stochastic will dip into over-sold, and emerge crossing the 20-line from beneath. It is THIS signal you are waiting for to feather your nest!
Similarly, when an instrument is in a strong correction, and experiences a short rally, the imminent resumption of the down-trend is signaled by the Stochastic dipping briefly into over-bought zones,before dropping once again through the 80-line from above.
Mastery of this one simple fact about Stochastic will help you get the very best from an oft-overlooked indicator. Combine this with your new knowledge that an instrument hovering in over-bought/over-sold levels will continue that trend for as long as the Stochastic remains in the >80 / <20 zones respectively, and you are set to both enter good trends during pull-backs, and remain in them for the duration of what is often the most powerful phase of their moves.
Some traders try to complicate their lives by attempting to pick divergences in Stochs and RSI when compared to Price Action, but this is not only an advanced skill, it is also an activity which carries a higher failure rate. Most experienced traders do not bother to split hairs about this - there is other low-lying fruit to be picked before attempting to trade divergences.
Stochastic is a very friendly indicator to have by your side , and it loves to work hard for you. It is uncomplicated, and will not trick you, providing you do a minimum of work to discover its limitations. It will always be there to offer a "second opinion" and believe me - this indicator does not know how to lie. If a move does not occur immediately Stochastic signals a change, you can still be sure that the change is not very far off.
Jason - I hope that answers your question, with enlightenment towards better and smarter trading.
I recommend this link for a full exposition of these and other Indicators, with thanks to the the people at Stockcharts.com - very much worthy of your time to visit.
Introduction to Technical Indicators and Oscillators - StockCharts.com
rathcoole_exile
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nice work, but as you could have observed, not only is this thread 2 years old, but Jayjay has subsequently been banned.
good effort though
Ingot54
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Chart to Illustrate Overbought Advantage of Stochastic
I was flicking through threads looking for any unusual indicators which I could try out on my Daily charts, when I discovered this thread. Just goes to show no question is a foolish question. I posted because I happened to spend last night researching Oscillators and their uses, and the link and the material was still fresh in my mind.
In future I will probably try to find more recent threads with appropriate topics in which to post.
I forgot to post the chart I prepared, showing how Stochastic can give an early signal of a pending strong move. Notice the beautiful Pin Bar just prior to the strong rally!
Notice how the bulk of the uptrend occurs once the Stochastic has entered the Overbought zone. Now I would not have caught this tend at the early signal, but I did eventuallyenter the trade once I discovered it was in a full uptrend.
Pity I can only devote part-time to this - there are quite a lot of good setups on Daily charts that go begging.
You can see the 880 pips I nominated for the trade - that is an optimum case. I imagine around 700 pips would be more likely for most of us, but there were a couple of opportunites to enter very late for even a few pips in such a powerful trend.
Kind regards
Ivan
Thanks Rathcool
I was flicking through threads looking for any unusual indicators which I could try out on my Daily charts, when I discovered this thread. Just goes to show no question is a foolish question. I posted because I happened to spend last night researching Oscillators and their uses, and the link and the material was still fresh in my mind.
In future I will probably try to find more recent threads with appropriate topics in which to post.
I forgot to post the chart I prepared, showing how Stochastic can give an early signal of a pending strong move. Notice the beautiful Pin Bar just prior to the strong rally!
Notice how the bulk of the uptrend occurs once the Stochastic has entered the Overbought zone. Now I would not have caught this tend at the early signal, but I did eventuallyenter the trade once I discovered it was in a full uptrend.
Pity I can only devote part-time to this - there are quite a lot of good setups on Daily charts that go begging.
You can see the 880 pips I nominated for the trade - that is an optimum case. I imagine around 700 pips would be more likely for most of us, but there were a couple of opportunites to enter very late for even a few pips in such a powerful trend.
Kind regards
Ivan
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rathcoole_exile
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Ivan, I'm not trying to be argumentative here, just to mention my own point of view that this trade could have just as easily been identified without the Stochastic indicator..... either as a box play from the horizontal channel (most recent 20 or so bars) or a breakout of the triangle/wedge (which started to form about 31 bars and 25 bars back from the breakout)
when such a channel of consolidation is forming or a triangle showing contraction of Range, I set Buy Stop entries and Sell Stop entries to catch a breakout ......
just my take on things, trading indicator-free
cheers, Garry
when such a channel of consolidation is forming or a triangle showing contraction of Range, I set Buy Stop entries and Sell Stop entries to catch a breakout ......
just my take on things, trading indicator-free
cheers, Garry
Last edited:
Ingot54
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Thanks Garry
Yes - that would be a legitimate approach.
Despite my loquacious style, I am still very much the researcher, and not at all familiar with many of the methods some of you guys use readily.
In live trading I like to watch a few indies together with the MA crossovers, and then take my time. I don't care if I miss 100 pips or whatever, though it would be preferable to harvest them of course. I am a permanent night shift worker, and can not trade off my daily charts at the times the new day's candle forms. So it is frequently the case that a breakout occurs (or not) while I am working ... or asleep.
And I do not like to leave contingent orders with my broker while I can not monitor the trade as it gets established.
I trade by a specific method http://www.trade2win.com/boards/for...-life-position-trading-higher-time-frame.html pretty much as you see at this link.
In time I will evolve to pure price action, but for now I have to be content to be a student of it. There are so many ways and means - and in the past I have been badly mauled because I didn't stick to my risk profile, trade and money management, and position sizing. Hopping all over the place is no good for a trader who wishes to develop FX trading as a full-time venture.
That all happened because I thought I could scalp Gold and Oil while they were having their day around a year ago!
Anyway - I will continue to read and learn and share.
Thanks for the response Garry.
Kind regards
Ivan
God Of Pips
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Nice. Well said. If you are planning to make a living trading fultime you would delete all your indicators and just keep to price action and S&R levels.
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