|Name:||Schaff TC Trigger|
|Parameter Defaults:||TC Period||10|
The Schaff TC Trigger marks price bars associated with key turns in the Schaff Trend Cycle indicator (STC). This occurs in a three-step process.
- The yellow Schaff Trend Cycle indicator drops below a dotted line at 25, called the "buy line".
- The STC turns up. The price bar above it is colored green and is called a TCB setup bar.
- A close above the high of the setup bar "triggers" the TCB.
1Traders can employ different trigger rules. For intraday timeframes traders can require that a market close above a buy setup bar in order to consider it "triggered". For a sell setup bar, traders can require that a market close below it to consider it "triggered". For 5-minute charts, two closes beyond the setup bar might be required. Another variation is to require that the market trade a certain number of points above a buy setup (or below a sell setup bar) in order to consider the setup bar triggered.
The same process, in reverse, is used to create a sell setup bar. TCS:
- The Schaff Trend Cycle indicator rises above a dotted line at 75, called the "sell line".
- The STC turns down. The price bar below it is colored magenta and is called a TCS setup bar.
- A close below the low of the setup bar "triggers" the TCS.
Schaff TC Triggers can help pinpoint trend cycle tops and bottoms, which helps identify trend momentum.
The 4-hour USDCHF chart, below, includes Schaff TC Trigger, two EMA lines and the STC. The yellow 23-period EMA is below the green 50-period EMA, showing a downtrend throughout. The green and magenta TC Trigger setup bars, however, highlight times when the downtrend is accelerating or decelerating.
The trend cycle is rising from A to B and from C to D, showing bullish retracements within the downtrend. Other times the trend cycle falls, as from B to C and from D to E. The longest and strongest price moves in the chart are when trend and the trend cycle are both falling.
Note how the two buy setup bars that preceded C did not trigger. The "setup and trigger" method of trade entry has two steps. The indicator conditions that produce the setup bar did occur, but the price movement required to trigger it did not. In the first case, the market barely exceeded the buy setup bar. In neither case did it close above. This allowed traders to maintain short positions (or refrain from buying) for another 100+ points. Tactics like this help traders avoid bad trades and get more out of profitable ones.
Schaff TC Triggers can be used as trading signals as part of an integrated trading strategy. In the British Pound chart, below, FXS-Trailing Stop (Trail) is used to indicate trend direction. The best trades generally have both Trend Momentum and Direction moving in their favor. Here are trade entry rules that reflect this:
- Buy GBPUSD if a TCB setup bar triggers and price closes above FXS-Trailing Stop.
- Sell GBPUSD if a TCS setup bar triggers and price closes below FXS-Trailing Stop.
What is different about the TC setup bars at A, C and E? They are all buy setup bars. But each is situated differently compared to Trail, and so should be used differently. The setup bar at A occurs with Trail horizontal and red, indicating a bear trend bias. Noting this, Traders could wait for Trail to turn light blue after the TCB triggers, before buying the market. The setup bar at C is well above Trail. And Trail is blue when the TCB triggers. That is a more bullish picture than at A.
The buy trigger at E occurs below Trailing Stop. Why is this of less interest than the two previous TCB Triggers? The trigger at E shows a rising trend cycle. But with price below Trail, the trend cycle is rising in a downtrend, suggesting a retracement move. Sideways to higher prices are expected, with first resistance at FXS-Trailing Stop – not very far away.
Determining both trend momentum and direction helps traders to identify higher probability trades. The sell setup bars at B and D both occur above FXS-Trailing Stop. Used with Trail, they should not be considered triggered until prices close below Trail, indicating that a downward bias in trend direction has joined a falling trend cycle. At B, price closed at Trail, not below it. At D price quickly closed below the sell setup bar, but not below Trail until four bars later. A prolonged bear move followed.