The MACD is simply the difference between the 12 and 26-period EMAs. Since the STC is a derivative of the MACD, it is frequently compared to the MACD. Likewise, when it crosses below the 75 line, it could be exiting overbought conditions. When the STC crosses above the 25 line, the market could be exiting oversold conditions and reverting towards the mean. In sideways markets, the STC can be interpreted similarly to standard oscillators. The chart below shows how the STC is able to quickly detect pullbacks in a long-term downtrend. These levels are great for detecting swing highs and lows in trending markets. The 25 and 75 levels are commonly used to denote oversold and overbought conditions, respectively. The STC rises rapidly in an uptrend, and falls in a downtrend. It is commonly used to detect market direction and predict turning points. Like the Stochastic, the STC oscillates between 0 and 100. Interpreting the Schaff Trend Cycle Indicator A shorter lookback will produce more oscillator turns, while a longer lookback will produce fewer, but perhaps more accurate turns. The inclusion of the Stochastic in step 2 is based on Schaff’s observation that currencies often exhibit cyclical behaviour within a long-term trend.Īccording to Schaff, most currencies have 20-period recurring cycles, meaning there are about 20 periods between successive swing highs/lows.Ī 10-period lookback, which is half the estimated length of the time cycle, is therefore chosen for the Stochastic calculations.ĭepending on your market’s characteristics, you can vary the Stochastic lookback to speed up or slow down the STC. The resulting STC oscillator thus combines the benefits of trend (MACD) and momentum (Stochastic) indicators. I’ll use the STC’s default parameters below. The Stochastic’s %K and %D calculations will come in handy. The STC is created by running the MACD through a double-smoothed stochastic calculation. The STC is not included with MT4 by default you can download it here for free. It is an ingenious combination of the popular MACD and Stochastic indicators, and is built on the premise that currency trends accelerate and decelerate in cycles. The STC was developed by Doug Schaff of FX-Strategy, who publicly released it in 2008. Let’s see how we can put it to good use! What’s the Schaff Trend Cycle? Seeing how Investopedia described it as ‘faster and more accurate’, I knew I had to check it out. One recent addition is the Schaff Trend Cycle (STC). A great feature about StrategyQuant is its regular addition of new indicators to the platform.
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