Trend Direction
If you’d like to follow along with the e-book version of the blog, click on the play button in the audio player below (at the bottom of the page).
What Direction Are You Headed
Heading in an accurate direction to meet our goals is an affair we spend our lives pursuing. Imagine how children wander aimlessly when left to their own devices. As adults, this would prove quite ineffective if your goals do not intersect with the direction of your vector.
Our World
All that aside, our world; the trading world, has tools to help you find that direction. Think of the bumpers in a bowling lane.
For those who have never bowled or have no idea what I’m talking about, a “bumper” prevents the ball from going into the “gutter”, a mechanism which leads the ball away from its intended goal. Where was I going with this?
Forward, March!
Where I was going is to demonstrate how important it is to have tools that provide direction to that goal. All the indicators we profile (hopefully) provide you with some direction. Even if you do not use this specific one, or any of them at the end of the day, you have our sincerest wishes that our efforts have sparked a reason to motivate you discovering your own tools to keep you pointed towards your goal.
Sunday Fun-day
Traders are an odd bunch. They actually look forward to the end of the weekend when trading resumes. I’ll admit that I use to fall bodily into that group. I sat at my computer with coffee (cream/sugar…thanks) just before the market opened up at 1700 EST on my FXCM (anybody remember them?) platform back in the 2000s waiting for that first “pip” movement to light up the screen. Times, and trading styles, were very different. Anyway, that history doesn’t preclude our Sunday recording session. After all, we try to record different days and different markets to put those indicators to test. Trial by fire, as it were. All that aside, our recording was on a summer Sunday market open. Let’s see how it does and then come back for the rest of the narrative.
Keep ‘em Coming
Last week we profiled an indicator which was suggested by a user. It happened very quickly. When VP and I researched and tested it, we decided immediately we were going to bring it to you. After all, why keep the goods under wraps? We do this for you, our community. Keep them coming. We do have a good collection amassed for future blogs and videos, but we’re not married to them in a sense of order or priority. Keep sending those stellar doodahs to [email protected], and thanks for your efforts.
Hitching a Ride
This week’s indicator has a sweet name. No guessing what it might be about. Trend Direction. Yeah, we definitely liked it. This chart overlay, single line confirmation indicator was developed in 2022 by an MT4 coder. The coding is based on our favorite indicator, the Average True Range; or the ATR.
Happy Trails
There was an additional use suggested for this indicator; employing it as a trailing stop, once the entry signal was given. We’ve created a graphic to illustrate what the developer had in mind; and naturally we love ATR based stops since they’re a foundational concept of the NNFX trading system. However, the only issue is that if you change the variables in the settings menu, you change the stop values – which may or may not jibe with your calculated trade numbers per NNFX guidelines. It’s definitely a cool feature, and you’re certainly welcome to try using it as your exit, if that’s your thing.
Get Them Gone
There was one other small item we noticed. There are small arrows included in the indicator where the signal line crosses price. You don’t need them, and the fewer things on the screen, the better. We’ll describe the necessary changes when we discuss the settings menu.
Magenta
When you load up the indicator, the biggest detractor is that the signal line is very dim and difficult to see. That being said, we had to thicken it up, a lot. For our educational and illustrative purposes, we changed the candles to arctic white for easier signal identification.
Settings
Now that we’ve covered a few of the indicator’s features, let’s get into the settings. There are a fat handful which carry varying degrees of usefulness. The first one UseATRMode toggles the ATR calculations off, essentially rendering the indicator useless. The second setting; NonATRStopPips is meant for use with the first setting in the off position, however, we found all of this had little value. Below is a close up with this setting toggled to “false”.
We mentioned getting rid of the arrows. Change the “UpArrowColor” and “DnArrowColor” to “none”. Disregard the “Arrow Distance” setting, since you’ll no longer have the arrows on the screen. Below is the settings menu.
ATRPeriod: The main indicator control. This number determines the number of periods used for the overall calculations. The default value is 9.
ATRMultiplier: This changes how many multiples of the ATR value are applied in the calculations. The default setting is 3.0.
ATRSmoothing: A filter which smooths out the lines to a small degree. It doesn’t have much impact on the overall settings, but we did tweak it when we tested the indicator. The default value is 0.
Advantages
* Based on the most important indicator in the universe.
* Multiple settings to custom tailor the signals.
* Easy signal identification.
How we use it.
We want to clarify something specific to the NNFX system. Our trade actions;
opening a trade
closing a trade
maintaining a trade
happen in the last 30 minutes prior to the close. It is totally acceptable to make your trading decisions then, and not actually wait for the close at 1700 EST.
Long signal: When price crosses above the signal line. Entry is in the last 30 minutes of the trading day.
Short signal: When price crosses below the signal line. Entry is in the last 30 minutes of the trading day.
Calling All Signals
Below is the mark-up on the default settings. Clear signal identification is apparent, and it seemed to do well with regard to trend recognition.
Testing Stations
If you’re new to these studies, we recommend looking at some of the older blogs to understand how we conduct our testing.
The six pairs we recommend testing are…
EUR/USD
AUD/NZD
EUR/GBP
AUD/CAD
CHF/JPY
CAD/SGD
The markets we test our indicators are the:
EUR/USD (Euro/US Dollar)
BTC/USD (Bitcoin/US Dollar)
XAU/USD (Gold/US Dollar)
SPX500 (S&P500 Index)
Timeframes and Results
We’ll run the Trend Direction indicator on the EUR/USD, BTC/USD, XAU/USD, and the SPX500 using the default and tweaked settings across the daily and 4-hour timeframes on the MT4 strategy tester.
We focus on three metrics;
Total trades
Win/Loss ratio
ROI (return on investment)
And… We’ve Got The Results
Below, you’ll find the testing results from our efforts.
Mixed Bag
The results were somewhat mixed. Gold and Bitcoin did quite well, while the Euro and S&P were a little soft. Remember, the big takeaway from our testing is that when we run the numbers, they represent a snapshot in time. In only a few days, the numbers will change, depending on the market. We don’t use full optimization because that wouldn’t be very helpful, especially on a daily chart. Our intent is to demonstrate that this particular indicator can be made better. A sharpened tool, if you will. Happy trading!
Money Management
Money management is based on the NNFX risk profile. That information can be learned in the Advanced Course.
Resources
We’ve made the Trend Direction indicator available for download on our site from the indicator library. When you’re ready to get it, click HERE.
We’re Here For You
Please ensure you sign up on our contacts page for the latest digests. If you missed it, email [email protected] with the title “Latest Digest Please” and we’ll send it off to you within 24 hours. And you’ll want to subscribe to our YouTube channel for the technical analysis videos. Don’t forget, we’re also on Facebook and Quora, where we answer questions relating to Forex.
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.