Schaff Trend Cycle: A Stochastic of MACD for Trend Signals

Summary

The Schaff Trend Cycle is described as a bounded oscillator intended to identify trend conditions and potential overbought or oversold readings. Its calculation starts with the difference between a faster and a slower exponential moving average, then applies a stochastic normalization over a lookback window. A smoothed version of that result is normalized a second time and smoothed again to produce the final oscillator.

The document gives example settings for the moving averages, cycle length, and smoothing factor, and plots reference levels at 25 and 75. Its explanatory text instead describes readings below 20 and above 80 as oversold and overbought, so the stated thresholds do not fully align. It supplies an indicator formula intended for platform-based strategy or screening use, but offers no backtest, market-specific evaluation, or evidence that its signals predict returns. The oscillator should therefore be treated as a signal construction method, not a demonstrated strategy.

Key ideas

• The indicator begins with the difference between fast and slow exponential moving averages.
• It applies two stochastic normalizations with smoothing to produce an oscillator bounded around 0 to 100.
• The code uses example settings and displays reference levels at 25 and 75.
• The prose cites 20 and 80 as overbought and oversold thresholds, creating a discrepancy with the plotted levels.
• No performance results are provided to establish the indicator's predictive value.

Tags

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.