The Schaff Trend Cycle (STC) is a charting indicator that is commonly used to identify market trends and provide buy and sell signals to traders. Developed in 1999 by noted currency trader Doug Schaff, STC is a type of oscillator and is based on the assumption that, regardless of time frame, currency trends accelerate and decelerate in cyclical patterns.
Key Takeaways
Schaff Trend Cycle is a charting indicator used to help spot buy and sell points in the forex market.
Compared to the popular MACD indicator, STC will react faster to changing market conditions.
A drawback to STC is that it can stay in overbought or oversold territory for long stretches of time.
Many traders are familiar with the moving average convergence/divergence (MACD) charting tool, which is an indicator that is used to forecast price action and is notorious for laggingdue to its slow responsive signal line . By contrast, STC’s signal line enables it to detect trends sooner. In fact, it typically identifies up and downtrends long before MACD indicator.
While STC is computed using the same exponential moving averages as MACD, it adds a novel cycle component to improve accuracy and reliability. While MACD is simply computed using a series of moving average, the cycle aspect of STC is based on time (e.g., number of days).
It should also be noted that, although STC was developed primarily for fast currency markets, it may be effectively employed across all markets, just like MACD. It can be applied to intraday charts, such as five minutes or one-hour charts, as well as daily, weekly, or monthly time frames.
STC Isn't Perfect
While the STC indicator seems to boast higher reliability than MACD, it has some inherent flaws. Namely, it can linger in overbought and oversold territory for extended periods of time. For this reason, the indicator is most often used for its intended purpose of following the signal line up and down, and taking profits when the signal line hits the top or bottom. Let's see how it works.
Consider the following hourly chart of the British pound and Japanese yen currency pair, GBP/JPY. While MACD generates its signal when the MACD line crosses with the signal line, the STC indicator generates its buy signal when the signal line turns up from 25 (to indicate a bullish reversal is happening and signaling that it is time to go long), or turns down from 75 (to indicate a downside reversal is unfolding and so it's time for a short sale).
Notice that the STC line generated a buy signal with the pair around 140.00 and then signaled that the market was overbought at 142.45—a 245-pip move. MACD did not generate a signal until the move was well underway. The next signal was a sell signal, generated at approximately 144.00, and lasted until 141.50—a 250-pip move. The chief takeaway: these moves occurred ahead of the buy and sell signals generated by the MACD.
Also, notice how many times the STC line resulted in a straight line, signaling anoverbought or oversold market. It’s a near-certainty that oversold markets will eventually become overbought markets, and vice versa, especially when it comes to the currency cycle aspects of this indicator.
The Bottom Line
The STC indicator is a forward-looking, leading indicator, that generates faster, more accurate signals than earlier indicators, such as the MACD because it considers both time (cycles) and moving averages. Like any chart indicator, the tool is best used with other forms of analysis and its performance will surely vary as market conditions change.
Slopes in the EMA charts signal the uptrend or downtrend of a stock. However, the Schaff and Trend Cycle is considered more accurate and reliable as it adds a novel cycle component that is based on the time frame (number of days).
Slopes in the EMA charts signal the uptrend or downtrend of a stock. However, the Schaff and Trend Cycle is considered more accurate and reliable as it adds a novel cycle component that is based on the time frame (number of days).
The Moving Average Convergence Divergence Indicator, also known as the MACD indicator is one of the top trend indicators. This oscillating indicator fluctuates around zero and helps measure both trend and momentum.
One use of the STC is to identify trends. This is done by looking for sustained periods when the indicator is above or below the zero line. A rising STC line indicates a bullish trend, while a falling STC line indicates a bearish trend. Another use of the STC is to identify overbought and oversold conditions.
Moving Average (M.A): Moving Average is the trend indicator and it is mostly used because it is very simple to use and it gives more effectiveness. ...
Relative Strength Index. ...
MACD (Moving Average Convergence/Divergence Oscillator) ...
The Hull Moving Average (HMA), developed by Alan Hull, is an extremely fast and smooth moving average. In fact, the HMA almost eliminates lag altogether and manages to improve smoothing at the same time. A longer period HMA may be used to identify trend.
The "RSI Momentum Trend" indicator is a valuable tool for traders seeking to identify momentum trends. By utilizing the Relative Strength Index (RSI) and customizable momentum thresholds, this indicator helps traders spot potential bullish and bearish signals.
Abbreviated as MA, the moving average has long been considered one of the best swing trading indicators in technical analysis. You'll use it to confirm trends in price movement.
The RSI is the best trend reversal indicator, and it assesses the strength of current price movements, while the MACD looks at momentum and trend formation.
The leading indicator is helpful to identify early entries and exits (especially near support and resistance). Green = trend up Red = trend down How it works: The leading indicator calculates the difference between price and an exponential moving average.
The Schaff Trend Cycle indicator is the product of combining Slow Stochastics and the moving average convergence/divergence (MACD). The MACD has a reputation as a trend indicator, but it's also notorious for lagging due to its slow responsive signal line.
Therefore, some traders prefer to use the indicator in conjunction with trend analysis. For example, when the price is rising overall, use the Fisher Transform for buy and sell signals, but not for short-sell signals. Meanwhile, during a downtrend, use it for short-sell signals and ideas on when to cover.
What are some indicators or tools used by swing traders? Swing traders will use tools like moving averages overlaid on daily or weekly candlestick charts, momentum indicators, price range tools, and measures of market sentiment.
The indicator has been extremely accurate during recent years when volatility reaches extreme levels at times. However, you must wait for a confirmed signal before taking a trade because false signals occur frequently during high volatility periods.
Is a Supertrend indicator accurate? No technical indicator is completely accurate, and this applies to the Supertrend indicator. It often generates false signals in a sideways market. However, such anomalous signals are quite less in this indicator compared to the other indicators.
Accuracy. Some people (including the indicator's creator) consider the STC an improved and more precise version of MACD. Both indicators utilize moving averages. However, the STC also uses cycles – repeating patterns that may help catch positive and negative trends.
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