Complicated answer to a simple question
Recently I got an email asking which of our indicators can I recommend and how it all really works. Quite simple question, but the answer is a bit complicated. There are two reasons for it. The first one is related to the character of the market you trade. That determines the choice of specific indicators, designed for the trend following or for the mean reverting markets. The second reason is personality of the trader. Everyone has their own risk tolerance, favorite setups, triggers etc. and needs tools that are suitable to achieve these goals. It does not mean that one indicator is better than another, they are just different tools that do the same job – help in profitable trading. You just have to decide what kind a trader you are and what instruments you want to trade. Frankly, I think you should not have more than three or four indicators at once on your chart.
Therefore, my answer will be a little more personal, as I will present my way of trading which implies specific group of indicators for that. And you will have to decide if that suits your own trading style and character of markets you trade. Or you follow your own path.
Personally and subjectively
I like the most Advantage Lines, Colors and Oscillator. Of course, these are my own preferences related to my trading style, which is trend following on hourly and daily time frames. I also use Dots for taking profits or confirming a signal if I rarely decide to catch a bottom or top. If I would rather analyze the market than trade it, I will look at the market structure from Swings, which very clearly shows relations between last tops and bottoms. However not all the markets are trend following and not all traders like to follow the trend. If you like to operate in mean reversion territory and prefer to buy bottoms or sell tops, you should look at Advantage RSI Heat Map and RSI Predictor Bands. They are great tools for counter trend signals or even trend reversal forecasts.
Below you will find a few words about all of our indicators. Although I will not present all the ways they can be used, only my favorite ones. It will be my personal way of using them mostly in trend following trading.
• Trend - before I place an order, I always check the trend in higher time frame with slow settings of Lines (2.5 or more). In 95% of cases, I trade only with its direction.
• Stop Trailing - faster settings of Lines (less than 2.5, or Aggressive setting). I use it as Stop Trailing to lock the profits and at the same time let them growth if the price move continues.
• Simple strategy - you can build a simple strategy (they are often the best) based on a slower and a faster Lines as a Trend Line and a Signal Line (I use similar strategy for my stock portfolio). Of course, it needs trending markets, so you have to carefully choose where and when to use it.
nBar High/Low Stop
• Effective Stop Trailing - similar to fast Advantage Lines. It is simply but effective Stop Trailing for fast moving markets. I usually have both, fast Advantage Lines and nBar High/Low Stop on my charts. I look for mutual confirmation in balanced markets or first signal from only one in strongly overbought/oversold markets. It can be also used as a filter for opening position in trending markets.
• Confirmation of signals - sometimes we wonder if the signal is strong, and we should follow it or it is a trap and will fail in next bar or two. If your strategy is trend following, the Colors will help you to distinguish between strong and weak signals. It doesn't look spectacular, but it is one of my favorite tools and I literally can’t imagine my trading without it. I rarely follow the signals from Advantage Oscillator or any other if my candlestick is not highlighted in blue or red.
• Catch bottoms and tops - use it to catch the beginning and an end of correction in the trend or to identify bottoms and tops in consolidation. I like the most mid-term setting for counter trend signals or short-term as a warning about market being overbought or oversold. Use it carefully as it is a counter trend tool.
• Taking Profit - I use Dots to take half of profit quickly and then let the rest of profit grow using Advantage Lines as a Trailing Stop.
• Catch bottoms and tops - look for Advantage Oscillator being overbought or oversold in lower and higher time frames simultaneously. A very reliable signals are double bottoms or tops of the Oscillator. You can confirm its signals by Advantage Dots (especially mid-term setting) or RSI Predictor.
• Momentum - wait for momentum in lower and higher time frames pointing in the same direction, even better if additionally confirmed by the trend on Advantage Lines. I like to open positions at the end of Wave B, profiting from Wave C - ideal signal appears when the Oscillator does not have the power to bounce much in Wave B and it crosses its signal line starting the second part of the correction.
• All signals should be confirmed by Advantage Colors! This improves profitability very much.
Advantage RSI and RSI Predictor (free)
• Strong overbought and oversold - use a multiperiod heat map to find overbought or oversold RSI in all time frames at once. It helps to identify not only minor bottoms or tops, but primarily mid- and long- term turning points.
• Support and resistance - RSI Predictor shows in advance price levels at which RSI will be overbought and oversold. I use it for finding supports and resistances in mean reverting markets. I usually combine it with Dots or Colors to confirm signals.
• Market structure - I like simple, yet effective tools and Swings are a pretty good example. I use it more as analytical tool on longer time frames than a trading one on fast, tick or minutes charts. If you want to track the market structure to be aware of trend change or breaking supports and resistances, this is a really great indicator for it.
• Trend - you can use it in trend setting on all your charts (as I do on majority of mine) as a thick line at the bottom of the charts. It shows the trend based on the swing structure of the market, so even in difficult, highly volatile market you know what the trend is based on the structure of last bottoms and tops. It is another inconspicuous, but very useful indicator.
• Volume flow - It can be used to check the relationship between supply and demand. The rising volume waves confirm the trend, a change in the relationship may be the first sign of a trend reversal that is not visible in the price.
• Accumulation and distribution areas - It can also be very useful for identifying areas of accumulation or distribution. Volume waves combined with price swings make it much easier to read all price and volume patterns, as described by Wyckoff and Weis.
Worth mentioning is RadarScreen - a great TradeStation tool for monitoring positions and finding new trading opportunities. Combine Advantage Lines, Oscillator and Colors for trend following signals and lock the profits by aggressive version of Lines Stop Trailing. Everything in one place at your fingertips.
The topic for another post. However, making long story short… there are two types of trading - discretionary and automated. If you prefer the first one, maybe it is a good time to try something new for free. If you prefer automated solutions, I know you will try our strategies out of curiosity :)
• Trader and Fighter - both are trend following strategies, the first one looks for breakouts, the second one tries to find end of corrections. Both try to keep positions for as long as possible, locking as much profit as possible.
• Miner - mean reversion strategy. Frankly, I am a trend follower trader and it is a little against my nature. However, if you look at its impressive performance, I bet you will admit that it is worth to give it a try :)
• Optimization - All of them are fully automated and fully customizable, so that everyone can choose their own time frame and other preferences. However, be careful not to overoptimize them. Always choose the parameters from the middle of the best range, not a spike. And look for Profit Factor or Return on Account rather than Total Net Profit. As we noticed, Percent Profitable is also quite important for further stability and robustness. All confirmed by a decent number of trades.
Contact us if you have any questions or need more explanation about our indicators or strategies. We will be glad to extend this post by new topics.