Combining Technical Indicators Strategy

This strategy uses a combination of technical indicators to analyze various aspects of a security, providing a comprehensive trading framework.

1. Analyzing the Main Trend (Trend Indicators)

Trend indicators are used to determine whether the main trend of a security is bullish (upward) or bearish (downward).

Indicators Used:

  • 100-period Simple Moving Average (SMA)
  • 55-period Exponential Moving Average (EMA)
  • Moving Average Convergence Divergence (MACD)
  • Ichimoku Kinko Hiyo Cloud (Ichimoku Cloud)
  • Average Directional Index (ADX) - (Note: The momentum indicator is used in the text, not explicitly ADX for the bullish/bearish comparison, but included in the list of trend indicators).

Signal Determination:

  • SMA (100) & EMA (55): Bullish if Price is above the MA; Bearish if Price is below the MA.
  • MACD: Bullish if value is positive (above zero); Bearish if value is negative (below zero).
  • Ichimoku Cloud: Bullish if Price is above the cloud; Bearish if Price is below the cloud.
  • Momentum Indicator (34 periods): Bullish if above the 100 level; Bearish if below the 100 level.

Trend Conclusion (5 Indicators):

  • Strong Uptrend: All five indicators are bullish.
  • Uptrend: Four out of five indicators are bullish.
  • Weak Uptrend: Three out of five indicators are bullish.
  • (And vice versa for downtrends)

2. Analyzing the Current Move (Momentum Oscillators Direction)

Momentum indicators measure the velocity of price change. Their direction analyzes the current price wave to determine if it is bullish or bearish.

Indicators Used:

  • MACD line vs. its Signal Line (9-period EMA)
  • Relative Strength Index (RSI) (14 periods) vs. its 8-period SMA
  • Rate of Change (ROC) (14 periods) vs. its 8-period SMA
  • Stochastic Oscillator (%D line vs. %K line)
  • Average Directional Movement System (+DI vs. -DI)

Signal Determination:

  • MACD: Bullish if MACD line is above its 9-period EMA; Bearish if below.
  • RSI vs. MA: Bullish if RSI is above its 8-period SMA; Bearish if below.
  • ROC vs. MA: Bullish if ROC is above its 8-period SMA; Bearish if below.
  • Stochastic: Bullish if %D line is above %K line; Bearish if below.
  • ADX (+DI/-DI): Bullish if +DI is above -DI; Bearish if below.

Current Move Conclusion (5 Indicators):

  • Strong Up: All five indicators are bullish.
  • Up: Four out of five indicators are bullish.
  • Weak Up: Three out of five indicators are bullish.
  • (And vice versa for downward moves)

3. Analyzing Price Extremes (Momentum Oscillators Area)

The area of momentum oscillators detects if prices are overbought or oversold, reflecting market psychology (greed vs. fear).

Indicators Used:

  • Intraday Momentum Index (IMI)
  • Relative Strength Index (RSI)
  • Commodity Channel Index (CCI)

Signal Determination:

  • IMI & RSI:
    • Oversold: Below 30%
    • Overbought: Above 70%
  • CCI:
    • Oversold: Below -100
    • Overbought: Above 100

Extreme State Conclusion (3 Indicators):

  • Extremely Overbought (Level 2): All three indicators reflect overbought readings.
  • Overbought (Level 1): Two of the three indicators reflect overbought readings.
  • Extremely Oversold (Level 2): All three indicators reflect oversold readings.
  • Oversold (Level 1): Two of the three indicators reflect oversold readings.
  • Neutral State: Otherwise.

4. Determining Support and Resistance (Pivot Points)

Pivot points provide estimated future support (S) and resistance (R) levels based on a higher time frame's prior High, Low, and Close prices.

Calculation Basis:

  • Intraday: Prior day's High, Low, Close.
  • Medium Term: Prior week's High, Low, Close.
  • Long Term: Prior month's data.

Trading Implication:

  • Trading above the main Pivot Point suggests strength towards R1, R2, etc.
  • Trading below the main Pivot Point suggests weakness towards S1, S2, etc.

5. Detecting Reversal Signals (Japanese Candlesticks)

Reversal candlesticks, particularly those with a large body, indicate a shift in price direction near calculated support and resistance levels.

Key Elements:

  • Body Size: A large body indicates clear control by either buyers or sellers.
  • Bullish Reversal Candle: A large green (bullish) body reversing the previous red candle's action, signaling a shift upwards.
  • Bearish Reversal Candle: A large red (bearish) body reversing the previous green candle's action, signaling a shift downwards.

Entry/Exit Filter:

Reversal big body candles are used for confirmation. A buy entry can be executed above the high of the reversal candle; a sell entry can be executed below the low.

Suggested Trading Strategies (Trend Following)

A. Bullish Correction Strategy

Aims to capture long trades during a bearish counter-trend move within a confirmed uptrend.

  1. Main Trend: Should be Strong Up or Up.
  2. Current Move: Should be Strong Down or Down (The correction).
  3. Market Extreme: Should be Oversold Level 2, Oversold Level 1, or Neutral.
  4. Trigger: Must have a big bullish reversal candle.

Execution: Entry above the high of the reversal candle. Stop loss below the pivot support or lowest level reached. Target set around the pivot resistance area.

B. Bearish Correction Strategy

Aims to capture short trades during a bullish counter-trend move within a confirmed downtrend.

  1. Main Trend: Should be Strong Down or Down.
  2. Current Move: Should be Strong Up or Up (The correction).
  3. Market Extreme: Should be Overbought Level 2, Overbought Level 1, or Neutral.
  4. Trigger: Must have a big bearish reversal candle.

Execution: Entry below the low of the reversal candle. Stop loss above the pivot resistance or highest level reached. Target set around the pivot support area.

Automating Analysis with Avramis Analyzer

The Avramis Analyzer indicator automatically performs this multi-faceted analysis and identifies strategy setups.

Analyzer Features:

  • Identifies Main Trend, Current Move, and Price Extremes using a clock system (showing direction and strength).
  • Outlines Pivot, Support, and Resistance levels.
  • Highlights trading strategies when conditions are met across enabled time frames.

Custom Strategy Configuration:

Users can design and save custom trading strategies within the Analyzer by setting conditions for the following four sections:

  • Main Trend
  • Current Move
  • Extremes
  • Big Candle (Reversal)

Scanner Mode (Advanced Version):

When enabled, the Analyzer scans all securities visible in the Market Watch window to identify all possible strategies across enabled time frames.

Detailed Summary

This document outlines a comprehensive trading strategy that combines multiple technical indicators categorized into five analytical components: Main Trend, Current Move (Momentum Direction), Price Extremes (Overbought/Oversold), Support and Resistance (Pivot Points), and Reversal Signals (Candlesticks). The strategy determines the strength and direction of the market using a consensus approach (e.g., counting bullish vs. bearish indicators) across the first three categories. It then utilizes Pivot Points and large reversal candlesticks to define specific entry points for Bullish and Bearish Correction Strategies. The text also introduces the Avramis Analyzer, an automated tool designed to execute and scan for these multi-faceted strategy setups.

Key Takeaways

  • The strategy uses five core components for analysis: Trend, Momentum Direction, Price Extremes, Support/Resistance, and Reversal Signals.
  • Trend Analysis determines the overall direction (e.g., Strong Uptrend, Weak Downtrend) using indicators like SMA (100), EMA (55), MACD, Ichimoku Cloud, and Momentum (34).
  • Current Move Analysis assesses the velocity/direction of the current price wave using indicators like MACD line vs. Signal Line, RSI vs. MA, and Stochastic Oscillator.
  • Price Extremes Analysis detects overbought (Above 70/100) or oversold (Below 30/-100) conditions using IMI, RSI, and CCI, classifying the state as Level 1 or Level 2 Extremes.
  • Support and Resistance levels are determined using Pivot Points calculated from prior High, Low, and Close data (Intraday, Medium, or Long Term).
  • Reversal Signals are confirmed using large-bodied Japanese candlesticks near S/R levels to filter entries/exits.
  • The Bullish Correction Strategy targets long entries when the Main Trend is Up/Strong Up, the Current Move is Down/Strong Down, and the market is Oversold (Level 1/2) or Neutral, triggered by a bullish reversal candle.
  • The Bearish Correction Strategy works conversely, targeting short entries during a confirmed downtrend correction near overbought levels.
  • The Avramis Analyzer is introduced as an automated tool that executes this multi-faceted analysis, identifies setups, and supports custom strategy configuration and scanning.