Metatrader: MAs + Slow Stochastic + ADX
Tuesday, September 21, 2010
, Posted by Usman Ali Minhas at 4:52 AM
The most important thing is that we grasp the characteristics of each indicator and how they work together. The moving average is a fundamental indicator used to confirm the trend. It is no exaggeration to say that we always need to constantly check both the candle sticks and the moving average.
First, we use the moving average (20 and 50 SMA) to find the direction of the market.
Then, the slow stochastic oscillator (with the setting at 12, 3, 2, and OS/OB levels set to 20/80) is used to look for an actual buying/selling point. This oscillator provides a clear buying/selling point indicated by a crossover either into positive or negative zones. The reason why the slow stochastic is used is that it gives less false signals than the fast stochastic. (The fast stochastic is more sensitive than the slow stochastic.) If we use the stochastic oscillator for relatively short-term trading ( 45- or 60-minute charts) and avoid the formation of the strong trend which is a weak point of it due to the fact that this indicator gets saturated in extreme conditions, we can make the best use of the characteristics of it to the maximum.
In addition, we use the ADX in order to determine a buying/selling point and how much momentum is in the trend. Concretely speaking, when a buying/selling point appears in the stochastic, it increases the chances of a reversal point where the trend changes its direction if +DI and -DI cross. Furthermore, the ADX is used to evaluate the strength of the trend. While the ADX is greater than 25 and continues to rise, a trading position is kept. Once it has slowed, it is time to consider closing the position.
First, we use the moving average (20 and 50 SMA) to find the direction of the market.
Then, the slow stochastic oscillator (with the setting at 12, 3, 2, and OS/OB levels set to 20/80) is used to look for an actual buying/selling point. This oscillator provides a clear buying/selling point indicated by a crossover either into positive or negative zones. The reason why the slow stochastic is used is that it gives less false signals than the fast stochastic. (The fast stochastic is more sensitive than the slow stochastic.) If we use the stochastic oscillator for relatively short-term trading ( 45- or 60-minute charts) and avoid the formation of the strong trend which is a weak point of it due to the fact that this indicator gets saturated in extreme conditions, we can make the best use of the characteristics of it to the maximum.
In addition, we use the ADX in order to determine a buying/selling point and how much momentum is in the trend. Concretely speaking, when a buying/selling point appears in the stochastic, it increases the chances of a reversal point where the trend changes its direction if +DI and -DI cross. Furthermore, the ADX is used to evaluate the strength of the trend. While the ADX is greater than 25 and continues to rise, a trading position is kept. Once it has slowed, it is time to consider closing the position.
