Traders Dynamic Index - the same indicator
All forex traders at some stage of their trading activities thought about the existence of a trading grail. Of course, because with his help, the life of a trader could significantly change for the better. But trader circles insist from everywhere that the grail does not exist. How to be? There is an exit. In fact, it is enough to find a system that generates signals with a high coefficient of profitable transactions, and strictly observe its rules. This will be the key to profitable and stable trading. Today we will consider the indicator Traders dynamic index (TDI) and a popular strategy based on it, giving simple and highly probable input signals.
TDI is based on the standard RSI indicator, which determines the strength of the current trend or, if you want, the rate of change in price. To smooth the lines, the moving averages algorithm is used, and Bollinger bands are used to estimate the amplitude of the oscillations. Thanks to an integrated approach, the TDI indicator alone can be used as a complete trading system. Actually, thanks to the systemTrading Made Simple (see below) he gained his fame as a tool for determining the current state of the market.
Currency pairs: EURUSD, GBPUSD, AUDUSD, USDCAD, USDJPY, EURJPY, AUDJPY, EURGBP
Trading Time: Around The Clock
Recommended DC: Alpari, Exness, Instaforex
- Period for calculating the RSI indicator. A value between 8 and 25 is recommended. The optimum period is 13.
- Starting price selection for the Relative Strength Index. By default, the closing price is used.
- Period of standard deviation. Used to calculate the boundaries of volatility (Bollinger Bands). The lower the value, the lines are more sensitive to changes.
- Smoothing the RSI fast line.
- The way to smooth. By default, a simple average.
- The smoothing period of the RSI slow line.
- The way to smooth the line.
Principle of operation
The green line is a smooth RSI line with a small period. Red has a longer smoothing period and is called a signal. RSI is not used in its pure form; its values are used only for calculating the fast and signal lines. Bollinger lines are also plotted based on RSI readings, but not smoothed values. The orange line is the average between the upper and lower lines of the channel. Actually, 3 of these lines reflect market strength and current volatility.
The TDI indicator simultaneously shows the direction and speed (strength) of the current trend, by which we already determine the right moment to enter the deal. Despite the complex nature, understanding the operation of the indicator is quite simple - you just need to be able to determine the signals and understand what they mean.
- Trend direction
First of all, the indicator can be used to determine the current trend. The green line above the red signals a change in the short-term trend to an uptrend. When green falls below red, a short-term trend changes to a downtrend.
The yellow line indicates a long-term trend. Most of the time it does not go beyond 68 and 32. When the line pushes off from these borders, it signals a possible change in trend.
- Market strength and volatility
The indicator also signals the current market strength. Usually, the greater the slope of the green line, the stronger the market players. If the line moves more horizontally than vertically, we are dealing with an extremely inert market.
The expansion of the Bollinger Bands signals an increase in volatility. The narrowing of the lines, on the contrary, indicates a decrease in volatility and a weakening market. With a strong narrowing of the lines, one should expect the release of any important reports or other news that can dramatically move the market. In such cases, it is better to temporarily refrain from trading.
- Trading Signals
First, consider the tactics for scalpers. If you trade with short targets, you need to open a Buy deal when the green line crosses the red line in the direction of the uptrend. Similarly, we open a deal to sell when the green line is below the red.For more conservative traders, a buy position should only be entered when both lines are above the yellow. Accordingly, in the case of a sale, the green and red lines should be below the yellow line.
There is also a variation of the strategy for medium-term positions with a transaction holding time from several days to several weeks. The rules are the same as for the conservative strategy, with the exception that all three lines should be above level 50 in case of purchase and lower - in case of sale. Ideally, Bollinger should indicate an increase in volatility, that is, the lines should diverge.
Trading Made Simple
Now we pass directly to the sensational trading strategy. Unfortunately, its author passed away due to his advanced age, but the TS continues to develop, numbering almost 4,000 pages in the original thread.
In addition to the TDI indicator itself, we will use Heiken Ashi and Stochastic.
Entering a buy position is when the green line crosses the red line from the bottom up during the first two candles of Heiken Ashi. The same thing, just the opposite - for sale. That is, both indicators should show a change in trend at about the same time.
To confirm, we use the stochastic readings with parameters 8/3/3. In case of purchase, stochastic should be in the oversold zone, in the case of a sale - in the overbought zone. If the stochastic is in the space between levels 80 and 20, look at the slope of the line. The stochastic slope should be more than 30 degrees in the direction of the main signal.
It is worth leaving the deal when the green line begins to bend or shows signs of a reversal, becoming horizontal.
Stop-loss is set at a minimum or high two candles back, but not less than 20 points. We set take profit twice as large as stop loss. As a rule, this is about 40 points. Here you can combine two approaches, breaking the position into two parts. We close one part by the signal of the green line and set take profit on the second.
Let's look at a few examples on the chart H4, EURUSD.
- Here we received a signal in the first two candles of Heiken Ashi. Stochastic at the same time shows a slope of more than 30 degrees. We set the stop loss at the maximum level two candles back - 30 points, take profit set at a distance of 60 points. We exit the trade when the green line changes direction. The result is +24 points.
- The intersection of green and red lines occurred on the first candle Heiken Ashi. Stochastic is in the oversold zone. We open a buy position, put a stop-loss at a distance of 20 points, take profit at a distance of 40. We exit the position when the direction of the green TDI line changes. The result is +10 points.
- The intersection occurred in the first two candles. We set stop loss at a local extremum, take profit at a distance of 80 points. We closed the deal on the signal of the indicator, but, as we discussed earlier, in some cases it is possible to split the position into two parts - the first is closed by take profit, the second by signal. In this case, the deal closed almost without profit, result +4 points.
If the stochastic is between levels 20 and 80 and does not have a clear direction, we ignore TDI signals. If the stochastic enters the overbought or oversold zone, we do not look at the tilt angle.
The author claims that over time, anyone will be able to achieve performance in 85% of successful transactions by trading according to the described methodology. Some manage to get even better results by trading on the TDI indicator alone. To get better signals, you can additionally use a higher timeframe. That is, first we get a signal on H1-H4, then go to M5-M15 and wait for the signal in the same direction. We close the deal according to the same rules, but on a small TF.
The TDI indicator works on its own, but with the help of additional filters or another TF, we can get better signals to make trading as efficient as possible. You can come up with your own filter or use one of the proposed ones - each of us has some special indicator, which is most comfortable to work with.