As a ‘noob’ trying to develop my first strategy I’ve been playing around with various different indicators and it’s become apparent to me that signals given by MA crossovers ALWAYS conflict with the overbought/oversold signals given by the stochastic oscillator. Take the attached example, where a buy/sell signal is given when the 5 and 13 period EMA’s cross over the 62 EMA. There were pips to be made from acting on this signal, but the stochastic indicates that the market is overbought?
Is this due to the way in which the stochastic oscillator is calculated?
Does this mean that the 2 indicators cannot be used together?
Why are people so quick to dismiss MA crossover based systems?
What other indicators would you recommend using in conjunction with MA crossovers?
Overbought-Oversold for any momentum indicator is not a signal, it is a state.
Signals for Stochs are:
K<D<80 -> go SHORT
K>D>20 -> go LONG
Using just the Stoch’s for signals is not very safe though.
Does better when combined with S & R lines, or Price Action. Many would add more choices.
I started with a simliar strategy. If your crossover and stochastic indicators are not lining up, you probably need to adjust your periods. Personally I think this is a great starting strategy. Remember it doesn’t matter how long you’ve been trading or what method you use, including simple price action or how experienced you are, you will always be dealing with pips left on the table when you close to soon or a losing trade cause you stayed in to long. The more you trade and the more experience you have, theoretically the less you leave and the less you lose because you stayed in too long or not long enough.
On to MA cross. Rule of thumb shorter time period, more false signals you will get. I can not read your chart and can’t see your stochastic setting or the time frame you are trading, If your stochastic is set K period 8. Slow 3, D period 3, and your EMA’s are 5, 3 and 62 they are not lined up properly. If you stick with the MA cross you are using you will need to change stochastic settings from 8 to something along the lines of K period to 12and see if they line up better.
You can also try this. Instead of using the custom moving averages indicator, use two the [U]moving average[/U] in indicators section of your trading platform. Set one MA at the 3 period, then set the other at 5 period, both simple and both close. This is if you are trading time frames under an hour. Next add your stochastic oscillator then when they cross and 3 period is above the 5 period and lines up with your stochastic that is a long signal until it crosses again and 5 period is above 3 and lines up with stochastic that’s a short til it crosses again. If you want longer signals, on longer time frames change MA periods to 12 and 6 or 12 and 24 periods. Just remember if you change your MA’s you have to change your stochastic as well instead of 8, 3 and 3 on the stochastic change it to 12 or 24.
This utube channel uses a MA cross system. If you go to their site and let them email you, you can get it for free. This is a classic example of using their free program, but don’t pay for additional traing, it’s not worth it, all they do is give you more examples. Forex Training | Effective Forex Trading Training - YouTube
What ever you decide, change your stochastic and you should be okay. Good Luck
Gp
I have witnessed the same thing. Now Thanks to gp00053 my doubts are kinda clear.
What i was doing till now was that i used EMA instead of SMA and applied it to open instead of close. what i noticed from these settings is that i can get in on trends early. And as for fakeouts, i simply use values 5 and 40 for the two MAs and trade a higher time frame (H4 or daily). Higher time frames are reliable in my opinion.
Hope this helps.
