- Mathematics and parameters
- Application in trade
- Strategy on the basis of TrendWave
- Several practical remarks
TrendWave Indicator is a non-standard version of the oscillator based on moving averages and the test of critical price zones. He confidently determines the periods of the flat and is intended for short-term trading on trend reversals.
Mathematics and parameters
The TrendWave indicator is located in the additional window below the price chart − the traditional one for the oscillator. Externally, the indicator resembles the classic Stochastic, but in it other mathematics is used.
Its calculation is based on two exponential moving averages: Wave_Period − the main (or fast) line; Avg_Period − signal line (slow). The second parameter is also called the averaging settings.
Setting the Wav_Period parameter (by default − 10) depends on the volatility of the trading asset and timeframe; The increase in the parameter requires a longer period for analysis.
Reduction of the Avg_Period parameter (it is by default offered − 21) will make a signal line more sensitive, increase in parameter − will reduce quantity of trading signals, but will make them more reliable.
For assessment of overbought/oversold zones, it is proposed to establish four levels, two on each side of the zero line. By default, pairs (60,53) are offered − the overbought zone, (-50, -60) − the oversold zone. These are authorial parameters that are recommended for most currency assets, with the exception of cross-pairs with unstable volatility.
In addition to the color scheme, you can configure options for notification of the appearance of trading signals − sound (Sound Alert) or by E-mail (Email Alert). Traditionally, a red-green color scheme is chosen.
Application in trade
A trading signal occurs when fast and slow moving averages intersect in critical areas. For purchase: intersection of lines in a zone of an oversold is necessary and the indicator turn from below up − on the line of the indicator appears a "signal" blue point. We open the transaction on the following bar.
For sale: it is necessary to cross lines in the overbought zone and turn the indicator from top to bottom; on the indicator line, an alarm yellow dot appears. We open the transaction on the following bar.
Advantages of trading with this indicator:
- Reliable determination(definition) of the periods of a flat;
- Anticipated signals of a turn;
- A possibility of an input at the beginning of a new trend.
It is assumed that between the critical zones the WaveTrend indicator does not show any trading signals visually, although intersections and line turns occur quite often. If such situations occur near critical areas, they can also be used to enter or increase the volume of already open positions.
For trading assets with high volatility, you can slightly reduce the requirements. For example, increase the range of the critical areas of the indicator or move them closer to the center line. In this case, there are more trading signals on the indicator lines, but the confidence in them is decreasing.
The Wave Trend indicator can be used on any timeframe, starting with M1. It is actively used for all kinds of scalping, but the most stable signals can be seen on the periods from M15 and higher.
Leading signals appear before the real turn, but, as a rule, the first signal should be perceived only as a warning about a possible reversal. To open a trade, you need either a repeated signal in the critical zone, or confirmation from additional indicators.
If this does not contradict the chosen system of management, , then when trading on TrendWave the first StopLoss is located at the nearest local extremum, and we close the transaction either on TakeProfit, or after emergence of a signal of the return turn.
Strategy on the basis of TrendWave
The most stable systems are obtained complete with trend indicators, working on the "gap", such as Parabolic SAR:
Use complete with other oscillators does not increase the accuracy of signals, for example, when comparing with Stochastic (with similar parametres!) key points of indicators practically match:
In order not to lose trading opportunities, as long as the indicator lines move between critical zones (when there are no signal points), you can monitor the trend using channel indicators, for example, the standard Bollinger Bands. Closing transactions can be after the appearance of an appropriate signal on the border of the bands.
Several practical remarks
Despite the fact that the TrendWave indicator was advertised as a commercial product that guarantees quick profits, in reality it has a standard set of problems, typical for trend instruments based on moving averages. At small periods, its signal points are very late, while on a long, confident trend, "false" signals appear even in situations of the smallest rollbacks.
Unfortunately, the TrendWave indicator is redrawn, and at sharp price throws (with the High/Low updating), the signal point can just disappear.
Therefore, after the first (and even the second!) a signal point, it is necessary to wait for closing at least of one candle that it will be convinced that a signal on an input in the market − true.
The Wave Trend Forex indicator cannot be considered base for creation of stable trade system though instead of the traditional oscillator he can quite be used. Signals of TrendWave need to be confirmed with additional indicators.