Stochastic System
This tutorial should be called: Combining Stochastics with other Technical Indicators, but Stochastic Bitcoin System sounds real nice.
Stochastic Oscillator cryptocurrency technical indicator can be combined with other indicators to form a trading system. For our example we will combine it with:
- RSI
- MACD
- Moving Averages Bitcoin Trading Technical Indicator
Example 1: Bitcoin Stochastic Trading System
Sell Bitcoin Signal Generated using Stochastic System
From our trading system the sell trade signal is generated when:
- Both Moving Averages are moving down
- RSI is below 50
- Stochastic heading downwards
- MACD heading downward below center-line
The sell signal was generated when all these trading rules were met. The exit cryptocurrency signal is generated when a signal in the opposite direction is generated i.e. When the indicators reverse.
Good thing about using such a system is that we are using different types of indicators to confirm the trade signals and avoid as many whipsaws as possible in the process.
- Stochastic - is a momentum oscillator bitcoin technical technical indicator
- RSI- is a momentum oscillator bitcoin technical technical indicator
- Moving Averages Technical Indicator- is a trend following bitcoin technical technical indicator
- MACD- is a trend following bitcoin technical technical indicator
It is very useful to combine more than one cryptocurrency indicator, as a combination of bitcoin signals is better than relying on just a single indicator. The cryptocurrency indicator combinations reinforce each other, and cancel out false whipsaw bitcoin trade signals.
A trend following technical indicator helps a trader to see the overall picture, while using more than one momentum technical indicator gives better and more reliable entry & exit points for trading bitcoin.
The cryptocurrency indicators combinations and their bitcoin signals help to decipher a lot of the btcusd trading market activity.
Example 2: Bitcoin Stochastic System
Buy Trading Signal Generated using Bitcoin Stochastic System
For this example the trend is clearly upward, but at some point there were a few bitcoin trading whipsaws generated by the stochastic oscillator indicator, can i spot them? So the question is how can a trader avoid trading these bitcoin trading whipsaws?
Well, the answer is that by looking at the other technical indicators such as MACD cryptocurrency indicator a trader could have avoided the whipsaw, even the MACD technical indicator had not given a crossover trading signal although it was very close to the zero center line level, at the same time the gradient at which the moving averages technical indicators turned was not so sharp as to warrant a decisive trading market trend reversal. Well the thing is that it’s not so obvious when it comes to recognizing cryptocurrency market whipsaws: it is a skill that takes some time but after some time you can spot whipsaws from a mile away.
One tip is that as long as MACD indicator is above zero center-line even if the MACD lines are heading downwards then the trend is still upwards. As you can see from the above example MACD indicator never went below zero line and afterwards the upward trend continued with the MACD indicator maintaining above Zero line and continuing to move upwards.
During ranging cryptocurrency markets Stochastic Oscillator indicator will give the fastest bitcoin trading signals which are prone to whipsaws. This is why stochastic oscillator indicator is best combined with other cryptocurrency indicators & the bitcoin signals traded are confirmed by another one or two other Bitcoin indicators.
