Guide · Trend following
Does Schaff Trend Cycle work?
Across 375 stocks, Schaff Trend Cycle cut the worst fall on 82%, beat buying and holding on risk-adjusted return on 13% and on raw return on 14%. Mainly a seatbelt: it softened the big falls on most stocks, but usually gave up return to do it.
What it predicts
A MACD line run twice through a stochastic, so it swings between 0 and 100 like a cycle. A turn up from below 25 sets up a buy; a turn down from above 75 sets up a sell.
- Buy setup: the Schaff Trend Cycle (STC, settings 10, 23, 50) turns up from below 25. In when a later close is above that setup day's high.
- Sell setup: the STC turns down from above 75. Out when a later close is below that setup day's low.
- A new setup the other way cancels a pending one. Otherwise the rule keeps its last call.
Trend following plays bet that prices that have been rising tend to keep rising for a while, and falls tend to keep falling. The family guide
How to use it
- It trades often (about 11 switches a year per stock), so costs, spreads and taxes eat into it more than the backtest's 0.05% per switch suggests.
- Expect to be wrong more often than right: only 37% of its calls worked. Its results come from the size of the winners, so following it means sitting through strings of small losses.
- It worked best on Micro caps (50% beat holding on risk-adjusted return) and worst on Big tech (0%).
- Use it as one input. Your signal combines the plays you count with the other factors you weight into one call.
When it worked
Schaff Trend Cycle did best against holding in the COVID drop (+21% median gap) and worst in the 2020–21 rally (−27%). Median gap in return against holding the same stock (per year over stretches longer than 18 months; crypto excluded).
| 2008 crash | Recovery 2009–19 | COVID drop | 2020–21 rally | 2022 bear | Since Oct 2022 | |
|---|---|---|---|---|---|---|
| Schaff Trend Cycle | +13% | −10% | +21% | −27% | +5% | −10% |
Where it worked
By kind of stock: how often it beat holding on risk-adjusted return, and the median Sharpe ratio gap.
| Group | Beat holding, risk-adjusted | Sharpe gap |
|---|---|---|
| Micro caps | 50% | -0.04 |
| Industrials & rentals | 33% | -0.23 |
| Healthcare | 22% | -0.18 |
| Real estate | 21% | -0.19 |
| Energy & power | 19% | -0.17 |
| Financials | 15% | -0.17 |
| Indexes & ETFs | 14% | -0.19 |
| Semiconductors | 13% | -0.27 |
| Software & devices | 12% | -0.32 |
| Media & telecom | 10% | -0.23 |
| Metals & mining | 10% | -0.27 |
| Consumer & retail | 6% | -0.27 |
| Industrials & materials | 4% | -0.24 |
| Sectors | 0% | -0.22 |
| Big tech | 0% | -0.22 |
Where it helped most
Sharpe ratio gap against holding, stocks with 3+ years of history
Right now
Schaff Trend Cycle holds 188 of 377 names as of the Oct 13, 2026 close.
Changed its call in the last two weeks:
Backtest results since 2005 (or as long as each stock has traded), against holding the same stock over the same dates, after 0.05% per switch. Past results don't promise future ones. This analysis does not constitute trading advice. Please meet with an advisor or independently review sources before making any decision.