STC - Schaff Trend Cycle was created by Dough Schaff. STC combines the advantages of trend-following indicators, cyclic and counter-trend oscillators into one single indicator. Schaff Trend Cycle is not based on Close price as it is usual, but its calculation is based on another indicator. So we can get Buy and Sell signals excluding many false whipsaws. Moreover STC generates signals soon enough, even before the trend changes. That's the reason why it is considered to be one of the best indicators ever.

Dough Schaff has revealed the secret of STC construction just in February 2008. Its construction is surprisingly simple. It combines MACD and Stochastic oscillator. Schaff has realized that MACD is a strong trend-following indicator, that gives us reliable signals about prevailing trend on the market. It also generates minimul whipsaws but its dissadvantage is that these signals come too late. Stochastic, on the contrary, generates signals early enough, on the market top or bottom, but many of them is false. That can cause many lossy trades.

STC combines these two indicators into a single one. It gives us signals that are clear, without many whipsaws, but most important that are early enough, before the trend changes. Combining these advantages into one indicator is the reason why STC is so popular on fast, dynamic markets like Forex is.

Schaff Trend Cycle calculation (formula):

1. Calculate one short and one long EMA from the Close prices (usually EMA23 and EMA50).
2. Calculate the MACD values
3. Calculate %K from the MACD values (recommended settings are to 10 days)
4. Calculate %D (recommended settings are to 10 days)
5. Calculate %K from %D (also called as PF)
6. Calculate %D from PF (PFF).

In the last step we have calculated the very Schaff Trend Cycle indicator values.

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How to trade Schaff trend cycle:

1. You can trade the crossings of STC with its Limits. The limits are usually set to 25 (30) and 75 (80) points. If the STC values crosses 25 limit upwards, the asset is considered underbought and we should Buy it. If it crosses 75 limit downwards, it is recommended to go Short.
2. As the STC creates very nice curves, it is not necessary to wait for 25/75 crossings. We can also focus just on the rise and fall of the curve. Should the curve fall, it's better to Sell. Should it rise, it's better to Buy.
3. Very nice signals can be also generated by STC crossings with its Moving average

STC gives us many options how to set it. Great results can be achieved by by assymetric settings, using EMA signal line etc. It's up to every trader how he adapts the indicator and which of the signals will take into consideration. If you have enough time and creativity, you can adjust the Schaff trend cycle indicator in such a way, that it can generate much better results than any other conventional (broadly known) one.

If you are interested in a deeper study of this technical indicator and prefer ready to serve solutions, this may be of  interest to you. There you can find all the available indicators in Excel file for download.