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.
Increased Efficiency
We introduce indicators not included with the MT4 platform to find more efficient indicators which may yield superior results than older indicators better suited for different markets.
Our Next Handpicked Indicator
The Fantailvma is our next baseline indicator choice. This indicator was developed by a coder named Bemac in 2007, modeled after Walters Forex WVMA modified fantail. The original “fantail” looked much different. It looked like a rainbow fan, as noted in the chart image below.
The version of the indicator we’re going to be looking into is a single line.
Baseline Indicator
The Fantailvma indicator is an on-chart indicator, overlaying price (See screenshot below). We consider it a “baseline indicator”. A baseline indicator falls into the category of indicators whereby it serves as an initial gatekeeper when setting up your algorithm. These concepts are explained in great detail in the Stonehill Forex Advanced Course HERE.
Advantages
*Single line signal
*Possibly used an exit signal
*Detects trends earlier than other moving averages
Parts & Pieces
The idea behind this indicator lies on the “V” in the name – variable. The components of the indicator are relatively simple, but together, it is able to adapt quickly to price, identifying trends much quicker than conventional moving averages. It uses components including the ADX (Average Directional Moving Index) which is used to measure the overall strength of a trend, assigning “weight”, and combined with others – which we’ll look at more closely below.
Single Lines are Uncomplicated
Below is a screenshot of what the indicator looks like on the daily time frame. Note that we’ve changed the candles to white to remove any bias. We’ve also thickened the indicator line and changed it from yellow to red to make it more visible.
Signals
Long = Price closes above the indicator. Entry on next open period.
Short = Price closes below the indicator. Entry on next open period.
Too Close for Comfort
It should be noted that the default setting creates a signal line which follows price very closely…too closely to be useful. Naturally, this will generate an over-abundance of signals.
A better representation of this indicator is noted below after we made a few changes to the settings and identified a long and short signal (and entry) for illustrative purposes.
Let’s zoom in on the two examples to get a better view.
Settings
There are four variables for this indicator; We’ll look at each one before moving into the testing portion of the blog.
ADX_Length: The number of periods considered for calculating the ADX portion of the indicator. The default value is 2.
Weighting: Prints higher peaks and lower bottoms (larger number) versus those which “hug” price more closely (smaller numbers). The default value is 2.0.
MA_Length: The number of periods considered using the different price data. The default value is 1.
MA_Mode: The various data sets as follows:
0 – open
1 – closed
2 – high
3 – low
The default value is 1.
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
If it doesn’t work on these five pairs, chances are it won’t work on other pairs. This is not an absolute, but we’ve found this rule is reliable in most cases.
We’ve added two other pairs to our testing sequence based on feedback we’ve received from our community. They are the:
BTC/USD (Bitcoin/US Dollar)
XAU/USD (Gold/US Dollar)
Timeframes and Results
In our initial test, we’ll run the Fantailvma indicator on the EUR/USD, the BTC/USD and XAU/USD using the default settings across the daily and 4-hour timeframes on the MT4 strategy tester. We use 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 will not examine shorter time frames in these studies. We will also run an additional test, using different values for the settings, to analyze which one may work better and examine the following results:
Total trades
Win/Loss ratio
ROI (return on investment)
There are 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.
Next, for comparison, we’ll explore the following;
Daily – 1 year
4-hour – 3 months
The reason exceptionally long (or short) testing periods are not included 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 are the spreadsheets listing the results from our tests.
The green highlighted rows represent “basic tweaks” on the settings which returned better results. Are these the best? Not necessarily. Given that variables including testing date range and broker data are different from person to person, you may find better settings.
Remember, the overall NNFX philosophy of taking profit, risk, and drawdown is that YOU are creating a system which YOU will be trading. Don’t let anybody else take that away from you. Part of the learning process is digging in and doing the work yourself. To learn more about these topics, check out the advanced course!
That beings said, the results we post in these blogs should never be considered specific trading advice.
***Note: Remember, never use just this one indicator as your decision of whether to open or close a trade. It should be part of a system.
Money Management
If you are curious as to what money management is used on our tests; we have a certain way of determining wins and losses, which can be found in the Advanced Course. Our goal here is to determine how well the indicator reacts to price with respect to producing a long or short signal. Your system, with its risk profile, will dictate individual returns.
Resources
As we did with past indicator studies, we’ve made the Fantailvma 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. We are excited to provide more trading tips in the near future. Sign up on our contacts page or subscribe to our YouTube channel. Receive early notifications as we continue to publish helpful, relevant, and informative Forex related material to support your quest to become a better trader.
And, now you are aware of another indicator that many traders don’t know or use.
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.