In the process of searching through and testing other systems that have been posted, I developed the idea of this elemental swing trading system. Based on a traditional MA crossover style concept and enhanced with some custom accessory indicators, I've found it to be remarkably consistent in a number of timeframes and currency pairs. I haven't fully settled on hard and fast rules for it yet, so I thought I would start this thread to generate some feedback and get some more trading minds involved in developing it further.
Trade entries are signalled by the SwingLine indicator - essentially my own implementation of an HMA, streamlined and re-coded for enhanced computational efficiency. False signals are filtered out by the SwingValidator indicator, and exit points are suggested by the Early Warning Indicator. Both of these accessory indicators are derived from the SwingLine and call it from their code.
Entry: Watch for the first candle that OPENS above the SwingLine to go long, and the first candle that OPENS below the SwingLine to go short. Take the trade only if the SwingValidator allows it. If the first signal candle is not validated, wait for the next signal candle that is.
Filtering: The SwingValidator moves up from zero when a valid swing is developing, and moves down toward zero when a swing is losing strength. Therefore, you should take a trade only if:
a> the current SwingValidator level is higher then the previous one
or
b> the current SwingValidator level is the same as the previous one, and the one before that was higher. This is because the SV often bounces off of zero as the swing changes direction, so you can get in a bar early by accepting two equal bars that are occuring as part of a bounce... BUT-->
If the SV has been at or near zero for three or more bars, STAY AWAY! This shows a flat consolidation period, and should never be traded by a swing system like this one. Instead, wait for a clear upward movement of the SV before entering.
Exit: The Early Warning indicator gives suggestions of points where a swing appears to be weakening, and where one should consider taking profits. When EW turns in a divergent direction (up is divergent when short, down is divergent when long) it is a warning signal, also a zero crossing against the trade direction is a warning signal. The most conservative approach is to exit immediately when the first warning is given, but I prefer to move a stop to some position behind the current market price to allow for the swing to continue. I continue to adjust my stop every time I get a fresh warning. In many cases, it's the third or fourth warning that actually signals the end of the swing, so much more profit can be made by this method.
In the following two example charts, the blue vertical lines show entries and the red vertical lines show warning signals.
Note that there will be times when the SwingLine crossing and the SwingValidator will give an entry signal, but the Early Warning is already diverging. This should be a sign that the trade carries extra risk and a more conservative trader may choose to pass on it. My preference is to place a wider stop loss (and reduce my trade size accordingly) and be prepared to ride out the first few hours until the swing gains momentum. One could even make a second entry when the EW divergence ends, but that would be a rather aggressive move... to each his own
DGC
Trade entries are signalled by the SwingLine indicator - essentially my own implementation of an HMA, streamlined and re-coded for enhanced computational efficiency. False signals are filtered out by the SwingValidator indicator, and exit points are suggested by the Early Warning Indicator. Both of these accessory indicators are derived from the SwingLine and call it from their code.
Entry: Watch for the first candle that OPENS above the SwingLine to go long, and the first candle that OPENS below the SwingLine to go short. Take the trade only if the SwingValidator allows it. If the first signal candle is not validated, wait for the next signal candle that is.
Filtering: The SwingValidator moves up from zero when a valid swing is developing, and moves down toward zero when a swing is losing strength. Therefore, you should take a trade only if:
a> the current SwingValidator level is higher then the previous one
or
b> the current SwingValidator level is the same as the previous one, and the one before that was higher. This is because the SV often bounces off of zero as the swing changes direction, so you can get in a bar early by accepting two equal bars that are occuring as part of a bounce... BUT-->
If the SV has been at or near zero for three or more bars, STAY AWAY! This shows a flat consolidation period, and should never be traded by a swing system like this one. Instead, wait for a clear upward movement of the SV before entering.
Exit: The Early Warning indicator gives suggestions of points where a swing appears to be weakening, and where one should consider taking profits. When EW turns in a divergent direction (up is divergent when short, down is divergent when long) it is a warning signal, also a zero crossing against the trade direction is a warning signal. The most conservative approach is to exit immediately when the first warning is given, but I prefer to move a stop to some position behind the current market price to allow for the swing to continue. I continue to adjust my stop every time I get a fresh warning. In many cases, it's the third or fourth warning that actually signals the end of the swing, so much more profit can be made by this method.
In the following two example charts, the blue vertical lines show entries and the red vertical lines show warning signals.
Note that there will be times when the SwingLine crossing and the SwingValidator will give an entry signal, but the Early Warning is already diverging. This should be a sign that the trade carries extra risk and a more conservative trader may choose to pass on it. My preference is to place a wider stop loss (and reduce my trade size accordingly) and be prepared to ride out the first few hours until the swing gains momentum. One could even make a second entry when the EW divergence ends, but that would be a rather aggressive move... to each his own
DGC
