Most trading strategies that are based on technical indicators use confluences to improve on its reliability. However, there are a few technical indicators which can be used as standalone technical indicators. This is usually because these indicators are in itself a confluence of multiple indications merged into one indicator.
This strategy uses an indicator which is in itself a confluence of multiple indications. It then adds another layer of confluence to this indicator using candlestick formations for improved accuracy.
Traders Dynamic Index
Table of Contents
- 1 Traders Dynamic Index
- 2 Reversal Candlestick Patterns
- 3 Trading Strategy Concept
- 4 Conclusion
The Traders Dynamic Index (TDI) Indicator is one of the most versatile oscillators available to retail traders. This is because the TDI is an indicator which incorporates the concept of a Relative Strength Index (RSI) and a Bollinger Bands Indicator.
The TDI plots a TDI line which is derived from the RSI added with a smoothing feature within its calculation. This line is represented by the green line on this template.
This indicator also plots a signal line which is also derived from the TDI line. Just as with the TDI line, the signal line also has a smoothing effect in its calculation. This line is represented by the red line.
Aside from this, the TDI Indicator also plots Volatility Bands, which are similar to the Bollinger Bands, only that it is applied to the TDI line instead of price action. Its base line, which is the middle line, is represented by an orchid colored line. Its outer lines, which are basically standard deviations from the base line, are represented by sky blue lines shifted above and below the base line.
Crossovers between the TDI line and the signal line is indicative of a momentum reversal. Traders typically use this as a trade signal.
The relation of the TDI line and the market base line is also indicative of trend direction. This can also be used as a trend reversal signal.
A TDI line breaching above 68 is considered as an overbought market, while a TDI line dropping below 32 is also considered an oversold market. Both of which are prime conditions for a mean reversal.
The outer lines of the volatility bands can also be used as dynamic markers for overbought and oversold markets based on the TDI line breaching outside the range of the volatility bands.
The TDI Indicator has several variables and options which can be modified by the users within its indicator settings.
- RSI period – Refers to the number of bars the indicator uses to calculate for the RSI.
- RSI applied price – Refers to the price point on each candle which the indicator would use as a source for its RSI computation.
- Volatility Band period – Refers to the number of bars used to calculate for the volatility bands.
- RSI smoothing period – Refers to the smoothing period applied on the RSI.
- RSI smoothing method – Refers to the moving average calculation method which would be applied to the RSI smoothing.
- Signal smoothing period – Refers to the number of periods used on the smoothing of the signal line.
- Signal smoothing method – Refers to the smoothing method applied on the signal line.
- Overbought and Oversold – Refers to the overbought and oversold level markers applied on the TDI range.
- Show Market Base line – Toggles the market base line of the volatility bands on and off.
- Show Volatility band lines – Toggles the outer lines of the volatility bands on and off.
Reversal Candlestick Patterns
Reversal Candlestick Patterns are candlestick formations that typically indicate a potential momentum reversal on price action. There are several reversal candlestick patterns. The chart below shows the various candlestick patterns that traders use.
Although these candlestick patterns seem too complex to memorize, all these signify the same thing – price rejection. The long wicks and quick reversals which develop after price reaches a certain price point indicate that the market is rejecting that price level and is about to reverse. These are telltale signs of a strong reversal which traders use as a reversal entry signal.
Trading Strategy Concept
This trading strategy is a mean reversal strategy based around the confluence of reversal candlestick patterns and the TDI mean reversal signal.
As for the TDI mean reversal signal, we will consider overbought signals only when the TDI line has breached above 68 and the upper volatility line, and oversold signals only when the TDI line has dropped below 32 and the lower volatility line. Both conditions should be met for better accuracy.
We then wait for the crossover of the TDI line back within the normal ranges and its signal line. Aside from this, we would also trade only when there is a confluence of the mean reversal signals and a reversal candlestick pattern.
Buy Trade Setup
- The TDI line should drop below 32 and the lower volatility line.
- The TDI line should cross back above the lower volatility line and its signal line.
- The TDI line crossover should be in confluence with a bullish candlestick pattern.
- Set the stop loss on the support below the entry candle.
- Close the trade as soon as the TDI line crosses below its signal line.
Sell Trade Setup
- The TDI line should breach above 68 and the upper volatility line.
- The TDI line should cross back below the upper volatility line and its signal line.
- The TDI line crossover should be in confluence with a bearish candlestick pattern.
- Set the stop loss on the resistance above the entry candle.
- Close the trade as soon as the TDI line crosses above its signal line.
The Traders Dynamic Index is probably one of the most effective standalone technical indicators used as a trading strategy. In fact, there are many retail traders who claim that they are consistently making profits using this indicator. But it is always best to use technical indicators in confluence with other technical analysis signals such as price action and candlestick patterns. This strategy attempts to improve on the regular mean reversal trading strategy typically used on the TDI by incorporating candlestick patterns as an additional confluence.
Forex Trading Strategies Installation Instructions
Traders Dynamic Index Mean Reversal Trading Strategy for MT5 is a combination of Metatrader 5 (MT5) indicator(s) and template.
The essence of this forex strategy is to transform the accumulated history data and trading signals.
Traders Dynamic Index Mean Reversal Trading Strategy for MT5 provides an opportunity to detect various peculiarities and patterns in price dynamics which are invisible to the naked eye.
Based on this information, traders can assume further price movement and adjust this strategy accordingly.
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How to install Traders Dynamic Index Mean Reversal Trading Strategy for MT5?
- Download Traders Dynamic Index Mean Reversal Trading Strategy for MT5.zip
- *Copy mq5 and ex5 files to your Metatrader Directory / experts / indicators /
- Copy tpl file (Template) to your Metatrader Directory / templates /
- Start or restart your Metatrader Client
- Select Chart and Timeframe where you want to test your forex strategy
- Right click on your trading chart and hover on “Template”
- Move right to select Traders Dynamic Index Mean Reversal Trading Strategy for MT5
- You will see Traders Dynamic Index Mean Reversal Trading Strategy for MT5 is available on your Chart
*Note: Not all forex strategies come with mq5/ex5 files. Some templates are already integrated with the MT5 Indicators from the MetaTrader Platform.
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