TURNING POINTS ADD-ON IDENTIFIES TREND AND ENTRY POINT
In the April 2016 issue ofTechnical Analysis ofSTOCKS & COMMODITIES magazine Solomon Chuama describes a trading system based on a graphic line of the trend that enters the market when the price matches a Fibonacci Retracement level of 23.6%. Chuama says that the FOREX market trends about 25% of the time.
In order to determine an uptrend, Chuama draws a line from the lower-left corner of the chart to the upper right corner that overlaps price bars. Prices are consistently rising with higher highs and higher lows. There are no sudden rises in price movement. A downtrend uses an opposite line with lower highs and lower lows.
Instead of a visual determination of the trend, we used the Turning Points slope indicator.
A TPSlope indicator > 0 represents an uptrend and TPSlope indicator < 0 signals a downtrend.
The TPslope indicator computes the slope in price either between two arbitrary turning points (TP) or between a turning point and the current bar. Turning points are numbered from right to left. The most recent TP has number one, the second most recent TP has number two, the third most recent TP has number three, and so on. The slope is computed in degrees. In our example we are computing the slope between the most recent turning point and the current bar.
One of the advantages of using an indicator rather than a drawing tool is that the indicator is calculated across the entire chart rather than redrawn for every segment. Another advantage is that the indicator parameters may be optimized for each instrument.
Once the trend is determined the system enters a trade when the price reaches a 23.6% Fibonacci Retracement We used the FibRetr indicator from Turning Points to calculate the retradement level.
This Forex trend trading system uses the turning point slope indicator to determine the trend and the Fibonacci Retracement indicator to define entry points.
In this example, both indicators included a parameter called “Neighborhood” that uses a specified number of bars to the left and to the right of each bar to establish that the central bar is either a turning point peak, a turning point valley, or neither of them. This is the only parameter that is optimized in the trading system, and all instances of the neighborhood parameter on both the TPSlope and FibRet indicators were linked so they optimized to the same value. See the Trader help file topic called “Parameter Search Space Dialog – Numeric” for details on how to link parameters.
The trading rules enter in a trend and when the price reaches a 23.6067977% retracement level.
The rules were reversed for the short side.
The chart described in this article is available for download in thewww.ward.net examples section.
The Trading Strategy described is based on 4 hour bars. We have also included a daily chart so Trader Pro users can examine the trading rules.
