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2010issue C0494-97

Schaff Trend Cycle as a MACD and Stochastic oscillator combination

The Schaff Trend Cycle is built by forming a MACD line from two exponential averages, then applying a Stochastic oscillator transform twice over a cycle lookback. Crossings of 25 and 75 are read as long and short setups, with the opposite breaches as exits.

  • The Schaff Trend Cycle forms a MACD line from two exponential averages, then applies a Stochastic oscillator transform twice over the cycle lookback, with reference levels at 25 and 75.
  • Defaults are a 23-period shorter average, a 50-period longer average, and a cycle length of 10, framed as the halfway mark between those averages.
  • A long setup is an upward breach of 25 and a short setup is a downward breach of 75, with the opposite 25 and 75 breaches as the matching exits.
  • The 0 to 100 band is meant to mark cycle tops and bottoms rather than overbought or oversold extremes, and the line can remain at those extremes until cycle time completes.
Entries in this reading3 entries
Schaff Trend Cycle2 readingsCurrent trackMACD115 readingsStochastic oscillator170 readings

The Schaff Trend Cycle is specified as a MACD line that is then passed through a Stochastic oscillator transform twice over a cycle lookback. Reference levels are plotted at 25 and 75, and the finished line is described as oscillating between 0 and 100.

How the combination is built

The Schaff Trend Cycle is specified with a shorter exponential-average default of 23, a longer exponential-average default of 50, and a cycle-length default of 10. Construction proceeds by forming a MACD line from the two exponential averages, then applying a Stochastic oscillator transform twice over the cycle lookback, with reference levels plotted at 25 and 75.

MACD is specified as a 12- and 26-period exponential-average pair with a nine-period signal line. Those average lengths are described as needing to be lengthened to serve beyond short-term moves.

Cycle length and smoothing weights

The cycle default of 10 is framed as the halfway mark between the 23- and 50-period averages and as consistent with 10-, 20-, and 40-day currency-cycle practice. A 16- to 23-day low-to-low span is treated as a 20-day cycle.

A 10-period exponential average is given the smoothing constant 0.1818, so the newest price receives an 18.18 percent weight, while a 20-period average is given a 9.52 percent newest-price weight.

How 25 and 75 crossings are read

Fast Stochastic oscillator %D is described as failing its smoothing role at the intended three-period setting unless periods are adjusted to the market. At that setting it is also described as inadequate as a trend-capture signal.

The signal line is described as oscillating between 0 and 100. A long setup is an upward breach of 25 and a short setup is a downward breach of 75, with the opposite 25 and 75 breaches stated as the matching exits.

Despite a banded 0 to 100 appearance, the stated objective is marking cycle tops and bottoms rather than overbought or oversold extremes. The line can remain at those extremes until cycle time completes.

Confirmation and chart length

Application notes call for candle confirmation with a second up-candle for longs and a second down-candle for shorts. They caution against pairing with other leading oscillators, and they suggest shorter exponential lengths on longer charts and longer lengths on shorter charts.

Schaff Trend Cycle on hourly USD/JPY

A long setup appears when the cycle line climbs through 25, then the line sits near 100 while USD/JPY runs; a short setup appears when it later falls through 75 and parks near 0. The path is a hand reading of the Figure 1 oscillator, using the 0–100 scale and the two guide lines the article plots at 25 and 75.
A long setup appears when the cycle line climbs through 25, then the line sits near 100 while USD/JPY runs; a short setup appears when it later falls through 75 and parks near 0. The path is a hand reading of the Figure 1 oscillator, using the 0–100 scale and the two guide lines the article plots at 25 and 75.USD/JPY · 1 hour

The print fixes STC(10, 23, 50) and draws guides at 25 and 75. Hours are counted from the left edge of that hourly window; the page marked six-hour ticks with 13 Feb and 16 Feb. Y values are whole oscillator points read by eye from a dark raster, not a table.

Educational research material, not investment advice. Historical source context does not establish present-day performance.
54 of 80 in the MACD track
201032-38 pp.Next on MACDCombining Relative Strength Index, the stochastic oscillator, and MACD as slope filtersAfter a trend or smoothing plan is chosen, momentum and oscillators are the remaining timing layer for turning points that lagging average crossovers miss.
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  50. 2008Relative strength exits with MACD averages and RSI
  51. 2008Assign one job per indicator in a three-screens rule set
  52. 2008Sequencing RSI, MACD, and average crossovers
  53. 2010Constructing the Schaff Trend Cycle from MACD and a dominant-cycle window
  54. 2010Schaff Trend Cycle as a MACD and Stochastic oscillator combination
  55. 2010Combining Relative Strength Index, the stochastic oscillator, and MACD as slope filters
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  71. 2015Audit open interest and trend before trusting oscillator crossovers
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  75. 2017Weekly and daily MACD on a single daily chart
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All 115 readings tagged MACD
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