✔️ Information reviewed and updated in December 2023 by Eduardo López
There are many different indicators such as the Schaff trend cycle that a trader can implement during the market trend analysis process. Some people often call them economic or technical indicators, and these are responsible for evaluating economic and industrial circumstances to provide useful information regarding the future profitability of companies.
These indicators are often used to predict possible changes in price patterns and stock trends. The Schaff trend cycle is one of the indicators that has proven its value over time, so today in this article you will find everything you need to know to implement it.
➡✨What is the Schaff Trend Cycle?
The Schaff Trend Cycle or STC indicator serves to identify the trend in the market, it is responsible for giving the correct signals to buy or sell. And Doug Schaff was the one who invented it in 1999, based on the assumption that all currency trends move in cycles.
So the STC is an oscillator that runs between two extremes, so it is possible to find some oversold and overbought areas when implementing it. When the indicator reaches the upper end, it can be said that the financial instrument falls into the overbought zone. However, when the oscillator reaches the lower extreme value, the asset is considered as a surplus.
➡✨ How does it work?
As we already saw, the STC is in charge of detecting ascending and descending trends through the exponential moving averages. However, it adds a cycle component to factor trends in the currency cycle.
Since the trends of the currency cycle move based on a certain number of days, so it is taken into account when performing the equation of the STC indicator, which provides greater precision and reliability.
In general terms and according to the old and new indicators, The STC indicator is one of the most original in its conception, since never before has an indicator been developed using a cycle component. Recall that most use some type of moving average, particularly EMA, as it is easier to calculate and focuses on the most recent prices rather than the long closing data set according to a simple moving average.
➡✨ Reasons why you should implement it
The Schaff trend cycle is a reliable oscillator that typically moves between 0 and 100 lines. And it helps you identify when an asset falls into oversold (which is below 25) and overbought (which is above 75) areas
The signals that are obtained from the STC usually appear faster than those from MACD. Don't forget that you should open trade positions when the oscillator is still going up or down, you can finish when the STC turns into a straight line at the top or bottom.
Finally, you should not forget that the STC is very simple, since it more easily identifies trends in the market by implementing EMA.