Any reading above 25 is not as suitable for range trading, and could actually be suitable for trend trading if ADX moves high enough. We can also take note of the strength of an existing trend by how far price has moved away from the period MA.
So what does this mean?.. It means the when you see such a bearish pin bar formation, you should be very alert that the bears are now most likely taking over the market and will continue to push price down. After the low was made, the bulls took over with such ferocity and force and pushed the price all the way up, completely wiping all the downward price moves made by the bears and making a high and finally closing a little bit below the high in the green.
It means that when you see such a candlestick formation, you should be alert now that that bulls are most likely taking over the market and will continue to push price up. It does not make any sense at all to trade all the Pin Bars You see because of one very simple reason: I believe the larger timeframes are the best timeframes to trade the pin bar.
Your email address will not be published. Both the upper and lower bands vary based upon the recent past. In short, our system has memory and adjusts to expanding or contracting volatility. The EasyLanguage code for our new system look something like this:. Below is a screen shot showing the effect of opening a new trade after the daily bar closes above the upper band. We have reduced our five consecutive losing trades down to two trades. We also reduced the number of trades and the number of consecutive losing trades.
In the end we really end up with about the same amount of net profit but we accomplish this task with fewer, more profitable trades. This is due to the reduced number of trading opportunities. A price proxy is nothing more than using the result of a price-based indicator instead of price directly.
This is often done to smooth price. There are many ways to smooth price. Such a topic is great for another article. For now, we can smooth our daily price by using a fast period exponential moving average EMA.
Below is an example of a trade entry. Notice the trade is opened when our price proxy yellow line crosses over the upper band. We have also reduced our losing trades to one. Looking at the strategy performance table above we are making slightly less money.
However, we are once again being more efficient with our trades by eliminating unprofitable trades. So, which strategy is better? It all depends on what you want or what you are comfortable with. Some people will wish to simply take as much money as possible. Others will wish to reduce the number of consecutive losing trades. If we want to use this in a trading system it would be ideal to create a function from this code that would pass back if we are in a bear or bull trend.
However, the programming aspect of such a task is really beyond the scope of this article. Nonetheless, below is a quick example of setting two boolean variables in EasyLanguage that could be used as trend flags:.
In this article we have created a dynamic trend filter that smooths price, adapts to market volatility and utilizes hysteresis principles. With just a few lines of code we can significantly reduced the number of false signals commonly associated with this style of trading strategy.
This type of filter can be effective in building the trading systems for ETFs, futures and Forex. It is a filter that tells us if a currency pair is currently in a trend our not. The higher the ADX, the stronger the trend is either up or down. The lower the ADX, the more the currency pair has been moving sideways. The chart below shows a period of time where price was trending and later changed to ranging. The key level for ADX is Whenever the ADX is below 25, we should focus on trading range bound strategies.
Any reading above 25 is not as suitable for range trading, and could actually be suitable for trend trading if ADX moves high enough. By eliminating our range trades when ADX is above 25, we have a better chance at turning a profit.
The SSI tells us a ratio of buyers and sellers of each major pair. We want to use the SSI by looking for trading opportunities opposite of the retail trading crowd. So when most people are buying, we should mostly be looking to sell, and vice versa. Hopefully this article has given you ideas on ways to improve your own strategy, whether you are trading trends, ranges, or something entirely different.
If you would like to test any of these filters risk-free, download a Free Demo account today with free charts and real-time pricing data. DailyFX provides forex news and technical analysis on the trends that influence the global currency markets. Take a free trading course with IG Academy. Our interactive online courses help you develop the skills of trading from the ground up. Develop your trading knowledge with our expert-led webinars and in-person seminars on a huge range of topics.
A demo account is intended to familiarize you with the tools and features of our trading platforms and to facilitate the testing of trading strategies in a risk-free environment.
Results achieved on the demo account are hypothetical and no representation is made that any account will or is likely to achieve actual profits or losses similar to those achieved in the demo account. Conditions in the demo account cannot always reasonably reflect all of the market conditions that may affect pricing and execution in a live trading environment.