ZigZag Indicator ; Improve ZigZag on Parabolic

ZigZagOnParabolic MetaTrader indicator — has been designed based on the 2 standard and popular MT4 indicators — The ZigZag and the Parabolic SAR[PSAR], it tries to show a better version of the ZigZag indicator by marking the Extreme Point of the price with a little delay as compared to the original ZigZag. Standard ZigZag looks for new extreme points by searching the percentage deviation of the price from the previous extreme point[highest or lowest]. The new ZigZag does so by using a different technique and based on the PSAR indicator. It looks at the Parabolic SAR indicator. Both ZigZag and the Parabolic SAR are drawn on top of the chart. The little delay in this new ZigZag is for the better and not for the worst. For all those who used the standard zigzag, they will know how unreliable it is on that chart.

Input parameters of the indicator:

Step (default = 0.02) — standard Parabolic SAR indicator setting.
Maximum (default = 0.2) — another standard Parabolic SAR indicator setting.
ExtremumsShift (default = true) — if true then the extremes are shown at their actual places; if false then the extremes are shown at the points in time when they were detected. Useful to see the delay between the actual extremum appearance and its detection point.
History (default = 0) — the amount of bars to use for calculation of the indicator. Change only if your PC is really slow. 0 — all bars are used in the calculation.

Although the standard ZigZag indicator cannot be used to for trade entries as it is very unreliable, this new improved zigzag indicator can be used as entry or exits. Can be used to detect support and resistance levels as well.

Here is one of the simplest way we could use this indicator to identify support and resistance levels and trade them as they break. Now adding some pivots and fibos together to it could produce some great results I believe. This will be almost a pure price action based system.

Most of the bad trades will have the opportunity to close at breakeven. Now, with the added fibos etc.. or maybe overbought and oversold indicators... they may allow us to avoid some of the bad breaks, therefore avoiding to trade them.

--- by ; bossxero's FxWarrior -----

Schaff Trend Cycle Indicator

Schaff Trend: A Faster And More Accurate Indicator
The Schaff Trend Cycle Indicator is the product of combining Slow Stochastics and the Moving Average Convergence/Divergence (MACD). The MACD has a reputation to be a trend indicator, yet it has an equal reputation to be 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 has improved on 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. (Learn more about stochastics )

STC Development
The STC Indicator was developed primarily for fast markets, particularly currency markets, yet it can be employed in any market.The trend in the modern day is to develop more accurate, reliable and early warning signal detectors to follow prices more accurately using the old models. The invention of the computer made it able to capture speed, accuracy and reliability of prices more uniformly, because the computer eliminated the need to calculate long equations using pen and paper. So, any new modern indicator will always have a higher reliability factor when a signal is generated.

However, as reliable as the STC Indicator may be, never will an indicator be perfect. The reliability factor may be higher but slight problems exist because of the STC's ability to stay in overbought and oversold markets for extended periods. For this reason, the STC Indicator should be used for its intended purpose: to follow the signal line up and down and take profits when the signal line hits bottom or top. Eventually another signal will generate.

An Example
The technical code for the STC works like this. Inputs: TCLen (10), MA 1 (23), MA 2 (50). Plot 1 (_SchaffTC(TCLen.MA1, MA2), Schaff_TLC. Plot 2 (25). Plot 3 (75).


Source: Standard Pro Charts
Take a look at the hourly chart of the GBP/JPY, the granddaddy of currency pairs. The MACD generates its signal when the MACD line crosses with the signal line. The STC Indicator generates its buy signal when the signal line turns up from 25 to indicate a long or turns down from 75 to indicate a short. Notice how many more signals the STC generated compared to MACD. It served as an early warning of trend change on the far left with the long red candle. A sell signal was generated at 142.50 and stopped at 139.50, a 300 pip move. While the MACD lines hovered around 140, the STC line generated a buy signal at about 140.00 and stopped at 142.45, a 245 pip move. The next sell signal was generated at about 144.00 and lasted until 141.50, a 250 pip move. These moves occurred ahead of the buy and sell signals generated by MACD.

Indicator Issues
Notice how many times the STC line resulted in a straight line to signal an overbought or oversold market. One certain aspect is that oversold markets will eventually become overbought and overbought markets will become oversold, especially when it comes to the currency cycle aspects of this indicator. Yet that is not a signal generator. Overbought or oversold markets represented by a straight line can in many instances still represent 200 points on the upside, as it did at the overbought mark at 14:00 in the middle of the chart. This is the small problem with the STC Indicator. The recommendation is to wait for the signal before jumping in.

One can increase the cycle count signal line from 10 and adjust upwards to fit the exact market. This would represent smaller market turns and a more accurate reading. Caution is advised not to increase the cycle count higher than 40, since that is the maximum currency count. One can also adjust downward to generate many market turns, but they may not be accurate signals. For longer time framed charts such as the weekly, it is recommended to adjust the EMAs to 12 and 26 or 7 and 13, and allow the same amount of cycle counts at 20 as the signal line. For shorter time frames, such as the 10-minute chart, increase the EMAs to 115 and 240, and allow the same cycle count. A personal recommendation is to allow the indicator to work as intended with the recommended settings, especially when it comes to cycle counts. Better to adjust the EMAs rather than the cycle count trigger line if one has to adjust at all.

Conclusion
The inventor of the STC Indicator allowed the full knowledge of formulas and codes to be released in 2008, so the trading public is now becoming aware of its use as an early warning trend signal. I have personally used and profited from its use on many occasions, and I have personally used the recommended settings. The interesting aspect is that this indicator is forward-looking, and is considered a leading indicator. This means false signals are very rare if ever generated. Plus, signals are generated much faster than the old indicators, such as MACD. For another recommended indicator that works as intended, this is a good one.

---- by Brian Twomey ------

" FRACTALs " Technical Indicator

Many people believe that the markets are random. In fact, one of the most prominent investing books out there is "A Random Walk Down Wall Street" (1973) by Burton G. Malkiel, who argues that throwing darts at a dartboard is likely to yield results similar to those achieved by a fund manager (and Malkiel does have many valid points).

However, many others argue that although prices may appear to be random, they do in fact follow a pattern in the form of trends. One of the most basic ways in which traders can determine such trends is through the use of fractals. Fractals essentially break down larger trends into extremely simple and predictable reversal patterns. This article will explain what fractals are and how you might apply them to your trading to enhance your profits.

What Are Fractals?
When many people think of fractals in the mathematical sense, they think of chaos theory and abstract mathematics. While these concepts do apply to the market (it being a nonlinear, dynamic system), most traders refer to fractals in a more literal sense. That is, as recurring patterns that can predict reversals among larger, more chaotic price movements.

These basic fractals are composed of five or more bars. The rules for identifying fractals are as follows:

* A bearish turning point occurs when there is a pattern with the highest high in the middle and two lower highs on each side.
* A bullish turning point occurs when there is a pattern with the lowest low in the middle and two higher lows on each side.

The fractals shown in Figure 1 are two examples of perfect patterns. Note that many other less perfect patterns can occur, but the basic pattern should remain intact for the fractal to be valid.

The obvious drawback here is that fractals are lagging indicators - that is, a fractal can't be drawn until we are two days into the reversal. While this may be true, most significant reversals last many more bars, so most of the trend will remain intact (as we will see in the example below).

Applying Fractals to Trading
Like many trading indicators, fractals are best used in conjunction with other indicators or forms of analysis. Perhaps the most common confirmation indicator used with fractals is the "Alligator indicator", a tool that is created by using moving averages that factor in the use of fractal geometry. The standard rule states that all buy rules are only valid if below the "alligator's teeth" (the center average), and all sell rules are only valid if above the alligator's teeth.

Figure 2 is an example of such a setup:

Figure2
As you can see, the primary drawback to this system is the large swings that take place. Notice, for example, that the latest fractal had a drawdown of over 100 pips and still has not hit an exit point. However, there are countless other techniques that can be applied in conjunction with fractals to produce profitable trading systems.

Figure 3 shows a forex trading setup that uses a combination of fractals (multiple time frames), Fibonacci-based moving averages (placed at 89, 144, 233, 377 and their inverses) and a momentum indicator. Let's look at a recent trade setup for the GBP/USD currency pair to see how fractals can help:

Figure 3
Here is a basic rule setup that is used when using a chart with a four-hour time frame:

* Initiate a position when the price has hit the farthest Fibonacci band, but only after a daily (D1) fractal takes place.
* Exit a position after a daily (D1) fractal reversal takes place.

Notice how the fractals pinpoint meaningful tops and bottoms? This helps to take the guesswork out of deciding at which Fibonacci level to trade - all we have to do is check to see if the daily fractal occurred. We should also note that the trend strength began increasing at the sell fractal, and topped at the buy fractal. Although we lose some pips with the confirmation, it saves us from losing out on mere market noise - 139 pips certainly isn't bad for three days! (For further reading, see Trading Without Noise.)

Things to Consider
Here are a few things to remember when using fractals:

* They are lagging indicators. They are best used as confirmation indicators to help confirm that a reversal did take place. Real-time tops and bottoms can be surmised with other techniques.
* The longer the time period (i.e. the number of bars required for a fractal), the more reliable the reversal. However, you should also remember that the longer the time period, the lower the number of signals generated.
* It is best to plot fractals in multiple time frames and use them in conjunction with one another. For example, only trade short-term fractals in the direction of the long-term ones. Along these same lines, long-term fractals are more reliable than short-term fractals.
* Always use fractals in conjunction with other indicators or systems. They work best as decision support tools, not as indicators on their own.

Conclusion
As you can see, fractals can be extremely powerful tools when used in conjunction with other indicators and techniques, especially when used to confirm reversals. The most common usage is with the "Alligator indicator"; however, there are other uses too, as we've seen here. Overall, fractals make excellent decision support tools for any trading method.


--- by Justin Kuepper / investopdia ------

Forex ; Trading Double Tops and Double Bottoms

Trading Double Tops and Double Bottoms
No chart pattern is more common in trading than the double bottom or double top. In fact this pattern appears so often that it alone may serve as proof positive that price action is not as wildly random as many academics claim. Price charts simply express trader sentiment and double tops and double bottoms represent a re-testing of temporary extremes. If prices were truly random, why do they pause so frequently at just those points? To traders the answer is that many participants are making their stand at those clearly demarcated levels.

If these levels undergo and repel attacks, they instill even more confidence in the traders who've defended the barrier and, as such, are likely to generate strong profitable countermoves. Here we look at the difficult task of spotting the important double bottom and double tops, and we demonstrate how Bollinger Bands can help you set appropriate stops when you're trading these patterns.


React or Anticipate?
One great criticism of technical pattern trading is that setups always look obvious in hindsight but that executing them in real time is actually very difficult. Double tops and double bottoms are no exception. Though these patterns appear almost daily, successfully identifying and trading them is no easy task.

There are two approaches to this problem and both have their merits and drawbacks. In short, traders can either anticipate these formations or wait for confirmation and react to them. Which approach you chose is more a function of your personality than relative merit. Those who have a fader mentality - who love to fight the tape, sell into strength and buy weakness - will try to anticipate the pattern by stepping in front of the price move.



Reactive traders, who want to see confirmation of the pattern before entering, have the advantage of knowing that the pattern exists but there's a tradeoff: they must pay worse prices and suffer greater losses should the pattern fail.


What's Obvious Is Not Often Right
Most traders are inclined to place a stop right at the bottom of a double bottom or top of the double top. The conventional wisdom says that once the pattern is broken, the trader should get out. But conventional wisdom is often wrong.

Leaving the trade early may seem prudent and logical, but markets are rarely that straightforward. Many retail traders play double tops/bottoms, and, knowing this, dealers and institutional traders love to exploit the retail traders' behavior of exiting early, forcing the weak hands out of the trade before price changes direction. The net effect is a series of frustrating stops out of positions that often would have turned out to be successful trades.



What Are Stops For?
Most traders make the mistake of using stops for risk control. But risk control in trading should be achieved through proper position size, not stops. The general rule of thumb is never to risk more than 2% of capital per trade. For smaller traders, that can sometimes mean ridiculously small trades.

Fortunately in FX where many dealers allow flexible lot sizes, down to one unit per lot - the 2% rule of thumb is easily possible. Nevertheless, many traders insist on using tight stops on highly leveraged positions. In fact, it is quite common for a trader to generate 10 consecutive losing trades under such tight stop methods. So, we could say that in FX, instead of controlling risk, ineffective stops might even increase it. Their function, then, is to determine the highest probability for a point of failure. An effective stop poses little doubt to the trader over whether he or she is wrong.

Implementing the True Function of Stops
A technique using Bollinger Bands can help traders set those proper stops. Because Bollinger Bands incorporate volatility by using standard deviations in their calculations, they can accurately project price levels at which traders should abandon their trades.
The method for using Bollinger-Bands stops for double tops and double bottoms is quite simple:

1. Isolate the point of the first top or bottom, and overlay Bollinger Bands with four standard-deviation parameters.
2. Draw a line from the first top or bottom to the Bollinger Band. The point of intersection becomes your stop.

At first glance four standard deviations may seem like an extreme choice. After all, two standard deviations cover 95% of possible scenarios in a normal distribution of a dataset. However, all those who have traded financial markets know that price action is anything but normal - if it were, the type of crashes that happen in financial markets every five or 10 years would occur only once every 6,000 years. Classic statistical assumptions are not very useful for traders. Therefore setting a wider standard-deviation parameter is a must.
The four standard deviations cover more than 99% of all probabilities and therefore seem to offer a reasonable cut-off point. More importantly they work well in actual testing, providing stops that are not too tight, yet not so wide as to become prohibitively costly. Note how well they work on the following GBP/USD example.


More importantly, take a look at the next example. A true sign of a proper stop is a capacity to protect the trader from runaway losses. In the following chart, the trade is clearly wrong but is stopped out well before the one-way move causes major damage to the trader's account.

Conclusion
The genius of Bollinger Bands is their adaptability. By constantly incorporating volatility, they adjust quickly to the rhythm of the market. Using them to set proper stops when trading double bottoms and double tops - the most frequent price patterns in forex - makes those common trades much more effective.

--- by; Boris Schlossberg / director of currency research at GFT Forex. ----

Forex Trading System

Profitable Trading System
Open any chart for any currency pair, any time frame. I will use EUR/USD 1H as an example.
Next, attach Bollinger bands and OsMA indicators. Default settings for both.
What we are going to use here is a classic trading method called Divergence trading. divergence simply happens when the indicator and price are going in opposite directions.

The indicator we are going to use for Divergence is the OsMA indiactor.

To avoid false Divergence signals, we are going to use Bollinger bands. Valid signals are only the ones that happens when price hits overbought – oversold levels of Bollinger bands.
Images1


When that happens we should know that price will reverse. In the above example, price was going up. So we are waiting for a sell signal. If price was going down, that means we are waiting for a buy signal.


Entry Rules –
Buy signal :

1 – Divergence
2 – Price hits Bollinger band’s oversold levels

Entry signal:
1 – when price starts to reverse up from the oversold level
2 – OsMA forms a new bar above 0 level.

Images2

Entry Rules –
Sell signal :
1 – Divergence
2 – Price hits Bollinger band’s overbought levels

Entry signal:
1 – when price starts to reverse down from the overbought level
2 – OsMA forms a new bar below 0 level.

Images3

Stop Loss :Last support/ resistance level.
Target :You have the choice to exist your trades when ..
1 – price hits the opposite Bollinger band’s level Or
2 – an opposite signals is generated

This system works great on 15M time frames and higher. Not recommended for smaller time frames.
The system is not to be used with major news releases.

It’s not the holy grail, but it’s a very good start. Try it and remember that practice makes perfect.

----- by ; Forex Warlord -------

Forex ; Ross Hook Trading Strategy

Joe Ross has been trading and investing since his first trade at the age of 14, and is a well known Master Trader and Investor. He has survived all the up and downs of the markets because of his adaptable trading style, using a low-risk approach that produces consistent profits. Joe Ross is the creator of the Ross Hook ™ (Rh), and has set new standards for low-risk trading with his concepts of "The Law of Charts™" and the "Traders Trick Entry™" (TTE). Joe Ross has a few preferred trading signals, but we will present here the Ross Hook and the Traders Trick Entry.

Ross hook could be created on charts after:

1. First correction after a 1-2-3 pattern breakout;
2. First correction after a ledge pattern breakout (A ledge consists of a minimum of four price bars. It must have two matching lows and two matching highs. The matching highs must be separated by at least one price bar, and the matching lows must be separated by at least one price bar.);

First correction after a trading range breakout (A Trading Range is similar to a ledge, but must consist of more than ten price bars.).

The definitions are from "Law of Charts" by Joe Ross. This is very useful reading also.

During an uptrend when the market fails to make new high, a Ross Hook is formed. During a downtrend when the market fails to make new low, a Ross Hook is formed. Every directional price move reaches a point of exhaustion and needs new participants to continue. That is why the market takes its breath and at this point a Ross hook occurs. The Ross hook could be identified when the market is trending not when it is in a phase of consolidation. We skip the signal if the market opens with gap beyond the Ross Hook.

With the Traders Trick Entry TTE we try to open position before the other traders. We can make profits in trading only if we take other people's money. We have to learn how we can be one step ahead of the other market players. When Ross Hook, 1-2-3 pattern or other chart formation occurs most of the traders will place their orders at these levels. The Big boys know this very well and often target these order to make easy profits. They move the prices towards the nearest major level and activate the orders around only to reverse the price movement towards the stop losses. TTE is designed for such cases. When we see Ross hook and expect a test of this level we try to open a position early and make a nice profit if the break is successful with good risk/reward ratio. In most of the cases if the break of the Rh is false we can close our position with small profit



Long Position

1. The high of the last period is lower than the high of the previous Ross hook is formed;
2. The price retraces lower and the high of every period is lower than the previous one. The retracement should be 3-5 periods max;
3. We place a buy order above the high of the last period with stop loss below its low;
4. When the long position is opened we place limit order according to our money management rules. We suggest closing part of the position and move the stop loss to break even when the Rh level is reached.

Short Position

1. The low of the last period is higher than the low of the previous Ross hook is formed;
2. The price retraces higher and the low of every period is higher than the previous one. The retracement should be 3-5 periods max;
3. We place a sell order below the low of the last period with stop loss above its high;
4. When the short position is opened we place limit order according to our money management rules. We suggest closing part of the position and move the stop loss to break even when the Rh level is reached.

---- by : Svetlin Minev ------

Forex Chaikin Money Flow

The Chaikin Money Flow (CMF) indicator was developed by Marc Chaikin to create an oscillating indicator for his earlier, cumulative indicator Accumulation/Distribution. Both indicators measure the degree to which money is flowing into or out of a security or currency. Chaikin created these indicators to expand and improve on an earlier volume indicator, On Balance Volume.
On Balance Volume (OBV) compares a currency pair's closing price with its previous day's close and either adds or subtracts the volume to a cumulative total, if the pair is up or down respectively. Accumulation/Distribution (A/D) altered the parameters of OBV by using the mean price, the midpoint between the periods high and low, to decide whether volume for that period was being accumulated (bought) or distributed (sold). After categorizing the period either as accumulation or distribution A/D then adds or subtracts volume based on the degree to which the pair closed above or below its open. The main difference between Chaikin’s two volume indicators is that Accumulation/Distribution is a cumulative running total while Chaikin Money Flow oscillates around a zero line.



Function
Chaikin Money Flow says:
• If a currency pair closes in the upper half of its trading range on a particular day and volume is strong, the pair is being accumulated.
• If thepair closes in the lower half of its range on strong volume, the pair is being distributed.
The values of CMF can also be used to indicate buying and selling pressure:
• Values that bounce between 0.1 and -0.1 and otherwise hang around the zero line are not strong enough to offer a bullish or bearish signal.
• Values above 0.1 and below -0.1 are indicative of buying and selling pressure respectively.
• Values above 0.25 and below -0.25 are indicative of strong buying and selling.
As with other indicators, Chaikin suggested looking for a divergence between the pricing action and the oscillator.
• If a currency pair trends up while the CMF rolls over and heads down, the currency pair will very likely top out soon after.
• On the other hand, if a currency pair trends down while the CMF bottoms out and begins to move up, the pair will very likely follow.

----- SBJ ----- by: cmsFX --------