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Welcome to the next Stonehill Forex Indicator Study.  This research represents an investigative look into how and why some indicators work and some don’t work as well.

New Versus Old

We are continuing to introduce indicators that are not included with the MT4 platform in an effort to find more efficient indicators which may yield superior results than older indicators that were suited for different markets.

Our Next Indicator Choice is…

We’ve chosen the Bulls Bears Impulse as our next confirmation indicator choice.  This indicator makes a good entry and/or exit indicator by measuring the overall pressure of the bulls versus the bears and paints lines based on that data.  The Bulls Bears Impulse Indicator presents as a green and red crossover, using a zero-line level as the long/short signal when the two signal lines cross.  We’ve posted it on the indicator page on the website for you to download for free (HERE).

Confirmation Indicator

Recall that a “confirmation indicator” falls into the category of indicators that serve as an initial checkpoint after the baseline indicator.  It is also a “below chart” indicator, which helps keep your price chart free of distractions.  These concepts are explained in great detail in the Stonehill Forex Advanced Course (HERE).

Advantages

Visually striking

Clear signals without confusion

Good for trend identification

A picture is Worth a Thousand Words

Below is a screenshot of what the indicator looks like on the daily time frame.  Note that we’ve changed the color of the candles to white to remove any emotional bias so that only the indicator is prominent.

How we Use it

As we mentioned before, when the red and green cross at the zero line, a signal is produced;

* Green pointing up and red pointing down = long

* Red pointing up and green pointing down = short.

This is why this indicator can be classed as a “zero-line cross” or a “crossover” indicator.  Below, is a screenshot demonstrating what the signals look like.

Settings

The setting includes; Length and Type.  The default settings are 13, and 0.  Before we take a closer look, I’ll explain what each parameter represents.

Length:  This setting controls the number of periods used to calculate the value of the signal.

Type:  Represents the different types of price data to calculate the signals.  In this indicator, there are four Types:

  • 0 – Simple:  The most basic data set, it represents simple averaging of the data.

  • 1 – Exponential:  Values closer to the current price are given more importance, and therefore bias the signal to more recent price action.

  • 2 – Smooth:  Smoothing data removes random variations and removes extreme highs and lows.

  • 3 – Weighted:  Similar to exponential calculations, data closer to current prices are given more importance, while older data’s importance is reduced. 

Testing…Testing…Testing

Remember, comprehensive analysis is strongly suggested, and we advocate backwards and forward testing indicators or systems prior to trading actual funds.  We propose conducting your tests on the following five pairs.

EUR/USD

AUD/NZD

EUR/GBP

AUD/CAD

CHF/JPY

Recall that if it doesn’t work on these five pairs, chances are it won’t work on other pairs. Granted, this is not an absolute, but we’ve found that this rule is pretty reliable in most cases.

Timeframes and Results

In our initial test, we’ll run the Bulls Bears Impulse Indicator on the EURUSD using the default settings; 13 and 0 across the daily and 4-hour timeframes on the MT4 strategy tester.  We’re using the fast method of testing the indicator to get a general idea; however, you may also run the tick-by-tick data set for a more precise result (which takes considerably more time).

As No Nonsense Traders – and therefore swing traders, we won’t be examining shorter time frames in these studies.  Then we’ll run multiple iterations using combinations of the three settings to see which ones work best and examine the results:

Total trades

Win/Loss ratio

ROI (return on investment)

There are many other metrics included in the strategy tester report, which can be compared, but these three metrics provide the necessary gauge to make quick decisions as to the usefulness of a particular indicator and its settings.

For comparison, we’ll explore the following;

Daily – 1 year

4-hour – 3 months

The reason we don’t include exceptionally long (or short) testing periods is due to changing market conditions, which might return irrelevant information.  A balance of statistically significant data is necessary for accurate results.

And the Outcome…

Below is a spreadsheet listing the results from our tests.

You can see that the green highlighted rows represent the best settings for that time frame when all the indicator settings have been taken into consideration.  Please keep in mind that this changes over time and should not be considered specific trading advice.

***Note:  Even in the 4-hour test, the optimized values could not produce a positive ROI.  Remember that this is using a specific money management profile (see below).  If you use different values in your money management profile, this indicator may return different values.

This is a great example where not every indicator will produce positive results on every timeframe and on every currency, hence our continuous search for better indicators.  Remember, if you find an indicator that doesn’t return a favorable outcome, there are literally thousands to choose from.

Money Management

For those who are curious as to what money management we’re using on our tests; we’re only using a stop loss of 1.5 x ATR and take profit of 1 x ATR.  We’re only determining how well the indicator reacts to price with respect to generating a long or short signal.  Your system, with its risk profile, will dictate individual returns.  The stop loss and take profit levels are based on the No Nonsense Forex methodology.

Resources

As we did with past indicator studies, we’ve made the Fisher No Repaint indicator available for download on our site from the indicator library.  We will keep adding better indicators with each study for your use, at no charge.  When you’re ready to get it, click HERE.

More to Come

There’s a lot more to come.  If you haven’t signed up on our contacts page or subscribed to the YouTube channel, please consider doing so to receive notifications as we continue to publish helpful, relevant, and informative Forex related material to support your quest to becoming a better trader.

And, now you are aware of another indicator that many traders don’t know or use.

Learn More Here

Want to learn more about where and how to find/test/use better indicators?  Check out the Stonehill Forex Advanced Course HERE, for more information.

Our only goal is to make you a better trader.

BTW – Any information communicated by Stonehill Forex Limited is solely for educational purposes. The information contained within the courses and on the website neither constitutes investment advice nor a general recommendation on investments.  It is not intended to be and should not be interpreted as investment advice or a general recommendation on investment. Any person who places trades, orders or makes other types of trades and investments etc. is responsible for their own investment decisions and does so at their own risk. It is recommended that any person taking investment decisions consults with an independent financial advisor. Stonehill Forex Limited training courses and blogs are for educational purposes only, not a financial advisory service, and does not give financial advice or make general recommendations on investment.