The Schaff Trend Cycle sounds scientific, to say the least, but it is just the name of one of the tools available on the IQ Option platform. There are many different indicators a trader can use in market trends analysis. Some we can call economic indicators. Other technical ones. Economic indicators assess economic and industrial circumstances to provide helpful information about the future potential profitability of public enterprises. Technical indicators are utilised to predict possible changes in price patterns and stock trends.
There is no one reliable indicator that can guarantee success. However, some proved their worth over time and are eagerly used by the trend traders. The Schaff Trend Cycle is one of them. Today's article will guide you on how to apply it in trading on the IQ Option platform.
Contents
Introduction to the Schaff Trend Cycle indicator
An indicator is known as the Schaff Trend Cycle or STC in short serves for identifying the trend in the market. It gives the signals to buy or sell. Doug Schaff was the one who invented it in 1999. It is based on the assumption that all the currency trends move in cycles.
The STC is an oscillator which runs between two extremes. It is possible to find the oversold and overbought areas with it. When the indicator reaches the upper extreme, it is said that the financial instrument falls into the overbought zone. And the opposite, when the oscillator reaches the lower extreme value, the asset is considered to be oversold.
Adding the STC to your IQ Option chart
First, you have to log in to your IQ Option account. Choose the asset you want to trade and set the timeframe of the chart. Now, click on the chart analysis icon and go to the Indicators tab. You will find the Schaff Trend Cycle among the momentum indicators.
Another way is to begin writing the name of the indicator in the search window in the top right corner. The STC will be displayed.
Click on the name of the Schaff Trend Cycle indicator, accept default settings, and it will be added to your IQ Option chart.
Below, you will find an exemplary chart with the STC attached. It is similar to the moving average convergence divergence indicator. Nevertheless, it catches the changes in the trend much sooner than the MACD because it adds a component of the cyclical patterns.
The Schaff Trend Cycle will work well in any market you want to trade. You can successfully apply it to the daily charts as well as weekly or monthly ones. It can be used also for intraday charts.
How do you read a Schaff Trend Cycle?
There are a few horizontal lines visible in the indicator's window. The ones with the values of 25 and 75 are most important. When the indicator passes the 25 line on its way up, you can expect an uptrend in the market. When the indicator falls below the value of 75, there is a sign of a downtrend coming. Whenever the STC oscillates between 25 and 75, you can be sure the trend is evolving.
The Schaff Trend Cycle is occasionally presented as a straight line. This happens in the lowest and highest values and it signals that the instrument is being oversold (when the line is built below the line of 25) or overbought (when the line runs above 75). It further means that the trend will soon reverse. The longer it is a horizontal line the more likely trend change will occur.
How to trade with the Schaff Trend Cycle indicator
We have already established that the downtrend takes place when the indicator falls below the 75 line. You should wait for the confirmation, though. Open a short trade when the next candle develops in the same direction. You may also use another indicator as a confirmation of the starting point for your transaction.
Open a long position when the STC rises above the 25 line as this signifies the upcoming uptrend. Wait for the confirmation that is for the next candle that appears in the same direction or use another indicator to verify your entry point.
It is often recommended to keep the position open as long as the indicator is falling or rising. Close the deal when it turns into a straight line as this implies the trend will soon reverse.
The comparison of the STC and the MACD indicators
The Schaff Trend Cycle oscillator is more reliable than the MACD. It is not, however, perfect. It tends to stay in the oversold and overbought zones for a large part of the time.
Trade with the STC when its line is going up or down and close the position when it reaches the top or the bottom.
Look at the chart below. There are both, the Schaff Trend Cycle and the moving average convergence divergence indicators. Note when they give sell and buy signals. STC seems to give signals earlier.
Summary
The Schaff Trend Cycle is a reliable oscillator that moves between 0 and 100 lines. It helps you to identify when the asset falls into oversold (below 25) and overbought (above 75) areas.
The signals received from the STC appear faster than from, for example, MACD. You should open trading positions when the oscillator is on its way up or down. End the transaction when the STC turns into a straight line on the top or the bottom.
Practice trading with the signals produced by the Schaff Trend Cycle indicator on the free IQ Option demo account. You will get virtual cash there so you can learn to use the oscillator in a risk-free environment.
Share your experience with the STC in the comments section below. This is a place built especially for this purpose.
Good luck!