Schaff Trend Cycle Indicator for MT4

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Schaff Trend Cycle Indicator for MT4

Introduction to the Schaff Trend Cycle Indicator

What goes up must come back down. The same law of gravity also applies in price movements. However, timing such reversals can be quite difficult.

Let us explore the Schaff Trend Cycle indicator which was developed for the purpose of identifying trend or momentum reversals.

What is the Schaff Trend Cycle Indicator?

The Schaff Trend Cycle indicator is a momentum or trend following indicator which is also an oscillator type of indicator. It provides indications of an overbought or oversold price level, as well as reversal signals coming from such overbought or oversold price levels.

It plots a rather smooth line which oscillates within the range of zero to 100. Schaff Trend Cycle indicators also typically have markers at levels 25 and 75. The area below 25 indicates oversold market levels, while the area above 75 indicates overbought market levels.

Schaff Trend Cycle Indicator for MT4

How the Schaff Trend Cycle Indicator Works?

The Schaff Trend Cycle uses an underlying pair of Exponential Moving Averages (EMA) to determine its trend direction. It also adds a smoothing effect on its computation in order to decrease its susceptibility to false signals and increase accuracy. Aside from this, the Schaff Trend Cycle indicator incorporates the number of periods within its computation as a means to determine the market’s cyclical movements.

How to use the Schaff Trend Cycle Indicator for MT4

This indicator has several critical variables that can be modified within its settings.

The “MAShort” and “MALong” variables pertain to the underlying EMA lines that would be used to compute for the trend direction.

“Cycle” refers to the number of periods in which the indicator would base its cyclical component on.

“CountBars” is simply the number of historical periods in which the indicator will still read the trend or momentum direction.

How the Schaff Trend Cycle Indicator Works

To use this indicator properly, it is best to add the levels 25 and 75 as markers, which most Schaff Trend Cycle indicators have. Traders can use the crossing of the Schaff Trend Cycle line coming from below 25 going above it as a bullish reversal signal coming from an oversold level. Inversely, a line which comes from above 75 crossing below it would indicate a bearish reversal signal coming from an overbought price level.

Buy Trade Setup

When to Enter?

The Schaff Trend Cycle line should come from below 25. Open a buy order as soon as the Schaff Trend Cycle line crosses above 25. Set the stop loss on the support level below the entry candle.

When to Exit?

Close the trade as soon as the Schaff Trend Cycle line starts to curl back down.

How to use the Schaff Trend Cycle Indicator for MT4 - Buy Trade

Sell Trade Setup

When to Enter?

The Schaff Trend Cycle line should come from above 75. Open a sell order as soon as the Schaff Trend Cycle line crosses below 75. Set the stop loss on the resistance level above the entry candle.

When to Exit?

Close the trade as soon as the Schaff Trend Cycle line starts to curl back up.

How to use the Schaff Trend Cycle Indicator for MT4 - Sell Trade

Conclusion

The Schaff Trend Cycle indicator is a useable oscillator which traders can use to detect trend reversals. However, it is not perfect. Lag could sometimes cause traders to open trades a little too late. Some traders try to compensate by opening trades prior to the actual crossing of the 25 or 75 lines.

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