Bollinger Bands (BB) Trend Indicator

Another good trend indicator in our selection. However, unlike the main set of trend indicators, this one can give signals to enter the market.

The principle of operation, as with others, is mainly aimed at indicating the current trend. The indicator not only shows the moments of a possible trend change but also indicates the strength and duration of this trend. This opportunity arises due to the use of not one EMA in the structure, but 3 at once. The averages are arranged in such a way that the price chart itself is obtained enclosed in a corridor with 2 borders and a central signal line. The combination of several EMAs allows you to give a signal about a trend change much earlier than when using the standard moving average. But these are not all the advantages of explosives over MA. The indicator can give quite high-quality signals to enter the market on the basis of a signal about a change in trend, and also give signals about profit-taking in two versions at once.

A sell signal occurs when the price chart crosses the line of the upper border of the indicator, and at least 2 Japanese candlesticks of the trading period have closed outside the corridor (sell 2,4,6). There are two ways to take profits: firstly, when the price chart after the sell signal reaches the level of the centerline of the indicator (tp 2.1,4.1,6.1), and secondly, when the price chart, entering the indicator corridor, reaches the opposite border of the indicator corridor (tp 2.2,4.2.2,6.2). A limiter of possible losses is not provided since the reverse crossing of the upper border of the indicator with a sell signal will be a cancellation of the sell signal and the basis for exiting the transaction, but we cannot predict the moment of the occurrence of this event.

A buy signal occurs when the price chart crosses the line of the lower border of the indicator, and at least 2 Japanese candles of the trading period (buy 1,3,5) have closed outside the corridor. There are two ways to take profits: firstly, when the price chart after the buy signal reaches the level of the centerline of the indicator (tp 1,3.1,5.1); secondly, when the price chart, having entered the indicator corridor, reaches the opposite border of the indicator corridor (tp 1.2,3.2,5.2). The limiter of possible losses is also not provided, and the principle of exit from the transaction is similar to the sale.

Pros:

  1. Much more features than MA;
  2. The ability to issue signals to enter the market;
  3. Two options for profit taking;
  4. It can show the strength of the trend;

Minuses:

  1. Large error in the testimony;
  2. It works only with a quality trend;
  3. Does not work in flat;
  4. Very susceptible to noise vibrations;
  5. Market entry signals are often late.

Stochastic Oscillator

This indicator also refers to the type of oscillators, and therefore was created in order to give the trader signals to enter and exit the market.

The principle of its operation is simple and almost similar to the principle of RSI. It also refers to zonal ones; it uses zones through which two lines of the indicator pass. Passes of indicator lines through these zones give signals for operations. The indicator lines themselves are 2 moving averages (EMA) with different averaging periods, which are selected in such a way that one is fast and the second is slow. The entire indicator area is divided into 3 zones: overbought zone (above level 80), oversold zone (below level 20), and a trading corridor (the zone between 20 and 80). As conceived by the author, a trader’s transaction is relevant only when the indicator line is inside the trading corridor, and another condition is met, which is slightly lower.

A sell signal occurs when the faster indicator line (blue), which was in the overbought zone (above level 80), crosses the slower (red) line from top to bottom, and they both breakthrough level 80 from top to bottom and enter the trading corridor. It is necessary to take profits at the moment when the last line of the indicator crosses the slower line from the bottom up, but it is not necessary that the lines reach the oversold zone (level 20) and enter it. The limiter of possible losses, in fact, is not provided, since the reverse crossing the slow line from the bottom up will be a cancellation of the sell signal and the basis for exiting the transaction.

A buy signal occurs when the faster indicator line (blue), which was in the oversold zone (below level 20), crosses the slower (red) line from the bottom up, and they both breakthrough level 20 from the bottom up and enter the trading corridor. It is necessary to take profits at the moment when the last line of the indicator crosses the slower line from top to bottom, and it is not necessary that the lines reach the overbought zone (level 80) and enter it. A limiter of possible losses is not provided since the reverse crossing the slow line from top to bottom will be a cancellation of the buy signal and the basis for exiting the transaction.

The chart above shows the possible signals from the indicator at the basic settings of averaging periods. Of the huge number of transactions, we have only 3 more or less acceptable transactions, and the rest, in fact, must be filtered out. Below, I have given the same chart interval with the stochastic indicator, but with different period settings:

Thus, simply changing the period settings to slower, we get a smoother change in the graph curve and, most importantly, now we have not 3, but 6 good deals and only a couple of filtered ones. In general, for the indicator to work in your favor – it needs to be long and hard to customize to your trading style.

Pros:

  1. Pretty accurate oscillator;
  2. The ability to adjust zones for filtering noise;
  3. Ability to adjust periods for smoothing;
  4. Quite frequent signals;

Minuses:

  1. Needs fine-tuning;
  2. It gives out a signal to exit the deal very early;
  3. Needs constant monitoring of positions.

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