What are Schaff Trend Cycle Indicators?

The Schaff Trend Cycle Indicator (STC) has been developed in response to traders needs in being able to identify a trend in the market at an early stage. Traders are always on the look out for a way of accurately and at the same time speedily identifying a trend in the market. The STC is an improvement on the MACD indicator in terms of speed and accuracy and the use of a modified slow stochastic algorithm. In fact under tests the STC in many cases was some 3 hours faster in accurately identifying a trend thus enabling traders to make an accurate currency trading decision.

Applying the Schaff Trend Cycle Indicator

The STC Indicator combines a moving average (exponential) convergence and divergence which is the MACD with the slow Stochastics oscillator indicator which is an indicator that confirms support and resistance levels. The MACD itself indicates trends and uses a very slow and lagging receptive signal line. However when the MACD is combined with a slow Stochastic it improves the signal dramatically and enables traders to spot currency trends much earlier than just using the MACD.

Because the STC functions through the early identification of trends much earlier than the MACD identifies them. It can also be used to identify a cycle that is within a trend. The exponential moving average it uses incorporates a cycle factor in order to take account of currency sequence trends. It is these trend movements which are set on a number of days which makes the STC more accurate than the MACD.

How to Apply the Schaff Trend Cycle Indicator to Your Forex Trade:

The above is a 60 minute sequence chart of the currency pair EUR/USD. Below the candlestick chart is a MACD indicator window and a STC window. The MACD signals a buy or a sell when the signal line (red) is crossed by the MACD line (blue). A buy signal

is generated when the MACD line passes through the signal line from below, as indicated on the chart on the 3^rd of December at 12pm.  A sell signal is generated when the MACD line passes through the signal line from above as indicated on the chart on the 6^th December at 1am.

The STC generates a buy signal when the signal line crosses above the 25 line and indicated that a long position should be created. When the STC signal line crosses down from the 75 line it is a signal that a short position should be created.

The chart shows that the STC generated buy and sell signals a couple of hours or more before the MACD generated its signals. The STC signalled a buy on the 3^rd December at 7am, some 5 hours and 50 pips before the MACD buy signal.

Also the STC generated a sell signal just before midnight on the 5^th December and the MACD generated its sell signal on the 6^th December at 1am, almost 2 hours and 25 pips after the STC sell signal.

The STC can be slightly challenging when straight lines signal that the currency is overbought or oversold as in the case of the chart above. The best way around this is to wait for a more precise signal and then make your trading decision.

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