Making Use of Cycle Indicators (Part 1?): TMA and Kelly's Cycle Identifier

Most cycle identifiers repaint, and the ones that don't are often not useful. I've hear from a veriety of forums that most of the authors of these cycle identifiers have given up on the idea of ever finding the non-repainting cycle identifying indicator. I am certainly with those authors, since I do not believe we'll ever find the perfect cycle identifier. I've done the searches for them, and I always come up empty handed.

There is, however, the repainting indicators that remain from all that searching. But what could you do with indicators that change their mind? Well, you use them for everything BUT entry points.

I believe that cycle identifiers are the best at two things:

1. Determining the prevailing direction of the price action, and
2. Exit points

A number of my indicators are early-indicators and tend to have a lot of false signals, but with the cycle identifier I can filter half of the signals by predicting the direction of the price action. You do, however, need to have a cycle identifier that does not repaint past the typical point that your early-indicator would show as an entry point.

The best one I've found so far is a TMA indicator I found in the Elite section of Forex-TSD. This seems to work quite well with a NonLag Moving Average Histogram I also picked up in Forex-TSD (not sure if I found that one in the elite section or the public section):

The TMA does repaint like most cycle identifiers do, but if I use the NonLag Histogram (which does not repaint) as my entry point when the colour changes, I can then use TMA as a filter for the false signals produce from the NonLag Histogram, and indicate where my next top or bottom will appear. I haven't made any money from this setup yet (still playing with the settings), but I do believe that this goose will produce some golden eggs.



As I also mentioned, you can also use these cycle identifiers as exit points. Cycle identifiers are great exit strategies since they try to predict the top/bottom, and if the cycle identifier fails to find the top/bottom, then you still would end up with profit. The one problem with this is that you need a cycle identifier that does not repaint frequently. One of the better ones is Kelly's Cycle Identifier. This indicator is not too quick to draw out a top or bottom (given the right settings), and keep you in the game a little longer than a trailing stop or a take profit. The problem with this setup is that you have to watch the chart constantly in order to catch that possible top/bottom before it reverses. 

I hate to say this because everyone says it, but these systems do not work every time. You find unique circumstances where you will be left with a loss. This might occur when your spread is too large, and your predicted price action can't penetrate it; or the early indicator gives a false signal; or the cycle identifier marks a position at the same time the early indicator says, "Hey, come on in man", but the cycle identifier soon changes its mind and your left a loss... and so on.
So, keep in mind Money Management, and stop-loss strategies to prevent too much loss.

Rainbow Volume: Colour Based System from Technical Analysis of Stock & Commodites

In the magazine Technical Analysis of Stock & Commodities (TASC) (July, 2011 issue) there was an a article on short-term trading using a colour based system that looked very interesting, but there was only code for Metatrader 5 and not Metatrader 4. So, I whipped up a Metatrader 4 version, with a new option (...and hopefully down the road there will be some more additions to this indicator):

• You can set a multi-coloured bar to determine how much of one colour is dominating the rest, or have the standard version with one colour (unforunately, the multi-coloured option only works as the price action currently changes)

Now, how it works is that the indicator takes the value of the current volume and the current price and compares it to the volume and price of n periods ago:

• Green if current price is and volume is greater than the price and volume of n periods ago
• Blue if the current price is greater than price n periods ago, but not the volume n periods ago
• Orange if the current price and the volume is less than the price and volume n periods ago
• Red if the current price is less than the price n periods ago, but not the volume n periods ago

The rules:

• Buy when it is Green or Blue
• Sell when it is Red of Orange
• Exit with a trailing stop, or if you're really adventurous you exit at the opposite colour change

If you want to know how the full details of how it works, then be sure to check out the article. The website is in My Top Web Sites sidebar.You can download this indicator from the sidebar My Indicators, or by clicking the link below. Enjoy!

Rainbow Volume

T3 / Triangular Moving Average with BB MACD: Who Will Be Named Champion?

I'm still playing with BB MACD. I think it is a great indicator. But like every other indicator out there, it has its flaws:

• If you are trading the dots outside of the bollinger bands you would find that it can be a little late to the show
• If you are trading the change in colour of the dots you would have a number of false movements, not a lot, but enough to make you nervous

So, I've been looking for something to filter this out. I've been browsing Forex-TSD's Elite/Advanced Elite sections for such an indicator, and I think a found a good one worth mentioning. It is a T3 with a Trianglar Moving Average compiled together in a unique setting that, when the two averages cross each other it provides very good entry signals (not sure on the exits just yet). Here's a picture of what it looks like (blue lines are the entry points):

Now, after I lined up all these lines with the T3/TMA and BB MACD entry points, I realize that I could just remove the BB MACD, and have the T3/TMA as a standalone indicator,  assuming that the exit points work ok. So, without the BB MACD entry signals tied in with the T3/TMA we get the below chart:

In this particular time frame (not the charts timeframe, but rather the span of the date) I calculated the how many pips were made in each chart:

• T3/TMA with BB MACD:
  - 9820 pips total
  - 892 pip average
  - 457 minimum
  - 2508 maximum

• T3/TMA without BB MACD:
  - 13368 pips total
  - 1215 pip average
  - 519 minimum
  - 3169 maximum

Hmmmm.... might have to give BB MACD the boot.

Well, for now anyway. More testing is need I would think. I believe I'm going to look for a bad situation for the T3/TMA on the charts (if I can find one), and see if BB MACD can correct it, or rather filter it.

Review Forex-TSD: The Good, The Bad, The Overwelming

So I finally decided to subscribe to Forex-TSD, gaining access to their Elite and Advanced Elite sections. So far it has its good and bad points (remember: this is my personal opinion of the websites performance, and could be a more smoother experience for someone else):
The Good:

• LOTS of indicators and Expert Advisers (EA), both inventive and useful (in fact, there are so many indicators/EA's on there website that it can be overwhelming; remember to stay calm and breathe)
• Great ideas and theories posted on their forums
• Very responsive to indicator/EA requests from other traders/payees
• Indicators that are published on the wonderful magazine Technical Analysis of Stock & Commodities (TASC); see My Top Websites.

The Bad:

• Would be very convenient if the indicators/EA's were displayed and available for download in a new indicator/EA section, rather than tracking down the source. They did have such a section, but I was disappointed when the indicators/EA's where not available to download; even upon searching such indicators/EA's on there website I still could not find them. I sent an email to the administrator asking about this, but I haven't received any reply yet.
• Often these indicators are not entirely new, in that they are one already-known indicator distorted to fit a new idea, or an old idea, ex. RSI with NonLag MA, or Stochastic with CCI and RSI mixed with a Hull Average, etc...
• I also didn't have access to My Profile on the website, and every time I click it I get the 'Sign up for Elite/Advanced Elite section to get access' page. Also included this in my email to the administrator.

I do believe the bad points can be fixed, either with me finding a way around such problems, or the admin fixing a couple things for me. I also believe that if you have MetaTrader for a trading platform, then you would benefit to signing up to this website. It's a monthly payment of $40 (US) for the Elite Section, or $90 (US) for the Advanced Elite Section, and if you are already doing well with your trading then this payment should be a problem. In fact you could just go crazy and download as much indicators and EA's as you can for the month, and get out with only paying the one month fee.