The Schaff Trend Cycle (STC) indicator is the product of combining Slow Stochastics and the Moving Average Convergence/Divergence (MACD). The MACD has a reputation as a trend indicator, but it’s also notorious for lagging due to its slow responsive signal line. The improved signal line gives the STC its relevance as an early warning sign to detect currency trends.
How the STC Works
The STC detects up and down trends long before the MACD. It does this by using the same Exponential Moving Averages (EMAs), but adds a cycle component to factor currency cycle trends. Since currency cycle trends move based on a certain amount of days, this is factored into the equation of the STC indicator to give more accuracy and reliability than the MACD.
Since the MACD is nothing more than a series of EMAs with a signal line, the STC was improved compared to the MACD. MACD has a 12- and 26-period EMA with a nine-period signal line. STC indicator improved on this by incorporating a 23- and 50-period EMA with a cycle component used as the 10-period signal line. Since we can factor cycle trends based on X amount of days, we can then know how far and how long a trend lasts in terms of potential pips to earn.
In terms of indicators both old and new, the STC indicator is quite original in its conception. Never before has an indicator been developed using a cycle component. Most use some form of Moving Average, particularly EMAs, as a base because it’s easier to calculate and it focuses on recent prices rather than a simple Moving Average’s long data set of closing prices.
