How do you enter into an ongoing trend ? tm Stoch provides a solution to this question. In a strong uptrend, most indicators will remain ‘overbought’ for a long period of time. They do not provide any new entry signals. tm Stoch is desgned to fill in the gap created by traditional indicators.
What tm Stoch does ?
The tm Stoch, is an improved version of the original Stochastics
indicator. The tm Stoch will quickly move down from an ‘overbought’ zone and come all the way down to the ‘oversold’ zone. It can do this at times when there is very little down price movement.
The almost constant cycling back and forth between the upper and lower reference lines displays a cyclic tendency. The tm Stoch is not a cycle indicator by any means. It is not measuring a cycle or projecting a cycle. It is simply following a tendency toward an up/down cycle that is often imperceptible on the price bars.
When a strong trend is continuing, a normal Stochastic often won’t react enough, or with enough amplitude to descend to a low enough level to feel comfortable entering the trade, even with a very short parameter. The tm Stoch can turn down from an overbought area and prices can still be climbing, but when the cycle tendency bottoms out and then turns up in the direction of the trend, often a good entry point presents itself.
Use in Trend Mechanic/Trend Analyzer
In Trend Mechanic, the tm Stoch is plotted with a default of 5.
Basic Rules
Identify the trend of the security. A moving average, MACD, Alligator or Charts may be used to do this.
In an uptrend, buy when tm Stoch falls below 10, then reverses and moves above 10.
In a down trend, sell when tm Stoch rises above 90, then reverses and moves below 90.
The entries in tm Stoch is to be taken in the direction of the trend. tm Stoch is ideal when used to find entry points within existing trends.
Tips & Tricks
1. When the market is just starting a move, with day by day rallies, there is no obvious entry point. Here, the 5 period tm Stoch will make a slingshot action by briefly dipping for a day or two. Of course, the idea can be reversed for downtrends. In a downtrend, the tm Stoch will perform a slingshot action by hooking up – for a day or two, which can be used to sell.
Advanced Ideas
1. Traders should not use this indicator to generate initial trading signals, but it can give excellent signals to enter on pullbacks within a trend, when often a trend is too strong to offer visual pullbacks on the price bars. There are probably many other uses that one can discover with some experimentation.
