Danger Signals from The Trading Mindwheel

31 mar

The "Danger Signals" indicator, a collaborative creation from the minds at Amphibian Trading and MARA Wealth, serves as your vigilant lookout in the volatile world of stock trading. Drawing from the wisdom encapsulated in "The Trading Mindwheel" and the successful methodologies of legends like William O'Neil and Mark Minervini, this tool is engineered to safeguard your trading journey.

Core Features:

Real-Time Alerts: Identify critical danger signals as they emerge in the market. Whether it's a single day of heightened risk or a pattern forming, stay informed with specific danger signals and a tally of signals for comprehensive decision-making support. The indicator looks for over 30 different signals ranging from simple closing ranges to more complex signals like blow off action.

Tailored Insights with Portfolio Heat Integration: Pair with the "Portfolio Heat" indicator to customize danger signals based on your current positions, entry points, and stops. This personalized approach ensures that the insights are directly relevant to your trading strategy. Certain signals can have different meanings based on where your trade is at in its lifecycle. Blow off action at the beginning of a trend can be viewed as strength, while after an extended run could signal an opportunity to lock in profits.

Forward-Looking Analysis: Leverage the 'Potential Danger Signals' feature to assess future risks. Enter hypothetical price levels to understand potential market reactions before they unfold, enabling proactive trade management.

The indicator offers two different modes of 'Potential Danger Signals', Worst Case or Immediate. Worst Case allows the user to input any price and see what signals would fire based on price reaching that level, while the Immediate mode looks for potential Danger Signals that could happen on the next bar.

This is achieved by adding and subtracting the average daily range to the current bars close while also forecasting the next values of moving averages, vwaps, risk multiples and the relative strength line to see if a Danger Signal would trigger.



User Customization: Flexibility is at your fingertips with toggle options for each danger signal. Tailor the indicator to match your unique trading style and risk tolerance. No two traders are the same, that is why each signal is able to be turned on or off to match your trading personality.

Versatile Application: Ideal for growth stock traders, momentum swing traders, and adherents of the CANSLIM methodology. Whether you're a novice or a seasoned investor, this tool aligns with strategies influenced by trading giants.

Validation and Utility:
Inspired by the trade management principles of Michael Lamothe, the "Danger Signals" indicator is more than just a tool; it's a reflection of tested strategies that highlight the importance of risk management. Through rigorous validation, including the insights from "The Trading Mindwheel," this indicator helps traders navigate the complexities of the market with an informed, strategic approach.

Whether you're contemplating a new position or evaluating an existing one, the "Danger Signals" indicator is designed to provide the clarity needed to avoid potential pitfalls and capitalize on opportunities with confidence. Embrace a smarter way to trade, where awareness and preparation open the door to success.

Let's dive into each of the components of this indicator.

Volume: Volume refers to the number of shares or contracts traded in a security or an entire market during a given period. It is a measure of the total trading activity and liquidity, indicating the overall interest in a stock or market.

Price Action: the analysis of historical prices to inform trading decisions, without the use of technical indicators. It focuses on the movement of prices to identify patterns, trends, and potential reversal points in the market.

Relative Strength Line: The RS line is a popular tool used to compare the performance of a stock, typically calculated as the ratio of the stock's price to a benchmark index's price. It helps identify outperformers and underperformers relative to the market or a specific sector. The RS value is calculated by dividing the close price of the chosen stock by the close price of the comparative symbol (SPX by default).

Average True Range (ATR): ATR is a market volatility indicator used to show the average range prices swing over a specified period. It is calculated by taking the moving average of the true ranges of a stock for a specific period. The true range for a period is the greatest of the following three values:

1. The difference between the current high and the current low.
   
2. The absolute value of the current high minus the previous close.
   
3. The absolute value of the current low minus the previous close.
   

Average Daily Range (ADR): ADR is a measure used in trading to capture the average range between the high and low prices of an asset over a specified number of past trading days. Unlike the Average True Range (ATR), which accounts for gaps in the price from one day to the next, the Average Daily Range focuses solely on the trading range within each day and averages it out.

Anchored VWAP: AVWAP gives the average price of an asset, weighted by volume, starting from a specific anchor point. This provides traders with a dynamic average price considering both price and volume from a specific start point, offering insights into the market's direction and potential support or resistance levels.

Moving Averages: Moving Averages smooth out price data by creating a constantly updated average price over a specific period of time. It helps traders identify trends by flattening out the fluctuations in price data.

Stochastic: A stochastic oscillator is a momentum indicator used in technical analysis that compares a particular closing price of an asset to a range of its prices over a certain period of time. The theory behind the stochastic oscillator is that in a market trending upwards, prices will tend to close near their high, and in a market trending downwards, prices close near their low.

While each of these components offer unique insights into market behavior, providing sell signals under specific conditions, the power of combining these different signals lies in their ability to confirm each other's signals. This in turn reduces false positives and provides a more reliable basis for trading decisions

These signals can be recognized at any time, however the indicators power is in it's ability to take into account where a trade is in terms of your entry price and stop.

If a trade just started, it hasn’t earned much leeway. Kind of like a new employee that shows up late on the first day of work. It’s less forgivable than say the person who has been there for a while, has done well, is on time, and then one day comes in late.

Contextual Sensitivity:

For instance, a high volume sell-off coupled with a bearish price action pattern significantly strengthens the sell signal. When the price closes below an Anchored VWAP or a critical moving average in this context, it reaffirms the bearish sentiment, suggesting that the momentum is likely to continue downwards.

By considering the relative strength line (RS) alongside volume and price action, the indicator can differentiate between a normal retracement in a strong uptrend and a when a stock starts to become a laggard.

The integration of ATR and ADR provides a dynamic framework that adjusts to the market's volatility. A sudden increase in ATR or a character change detected through comparing short-term and long-term ADR can alert traders to emerging trends or reversals.

The "Danger Signals" indicator exemplifies the power of integrating diverse technical indicators to create a more sophisticated, responsive, and adaptable trading tool. This approach not only amplifies the individual strengths of each indicator but also mitigates their weaknesses.

Portfolio Heat Indicator can be found by clicking on the image below

Danger Signals Included

• Price Closes Near Low - Daily Closing Range of 30% or Less
  
• Price Closes Near Weekly Low - Weekly Closing Range of 30% or Less
  
• Price Closes Near Daily Low on Heavy Volume - Daily Closing Range of 30% or Less on Heaviest
• Volume of the Last 5 Days
  
• Price Closes Near Weekly Low on Heavy Volume - Weekly Closing Range of 30% or Less on
• Heaviest Volume of the Last 5 Weeks
  
• Price Closes Below Moving Average - Price Closes Below One of 5 Selected Moving Averages
  
• Price Closes Below Swing Low - Price Closes Below Most Recent Swing Low
  
• Price Closes Below 1.5 ATR - Price Closes Below Trailing ATR Stop Based on Highest High of Last 10 Days
  
• Price Closes Below AVWAP - Price Closes Below Selected Anchored VWAP (Anchors include:
• High of base, Low of base, Highest volume of base, Custom date)
  
• Price Shows Aggressive Selling - Current Bars High is Greater Than Previous Day's High and
• Closes Near the Lows on Heaviest Volume of the Last 5 Days
  
• Outside Reversal Bar - Price Makes a New High and Closes Near the Lows, Lower Than the Previous Bar's Low
  
• Price Shows Signs of Stalling - Heavy Volume with a Close of Less than 1%
  
• 3 Consecutive Days of Lower Lows - 3 Days of Lower Lows
  
• Close Lower than 3 Previous Lows - Close is Less than 3 Previous Lows
  
• Character Change - ADR of Last Shorter Length is Larger than ADR of Longer Length
  
• Fast Stochastic Crosses Below Slow Stochastic - Fast Stochastic Crosses Below Slow Stochastic
  
• Fast & Slow Stochastic Curved Down - Both Stochastic Lines Close Lower than Previous Day for 2 Consecutive Days
  
• Lower Lows & Lower Highs Intraday - Lower High and Lower Low on 30 Minute Timeframe
  
• Moving Average Crossunder - Selected MA Crosses Below Other Selected MA
  
• RS Starts Curving Down - Relative Strength Line Closes Lower than Previous Day for 2 Consecutive Days
  
• RS Turns Negative Short Term - RS Closes Below RS of 7 Days Ago
  
• RS Underperforms Price - Relative Strength Line Not at Highs, While Price Is
  
• Moving Average Begins to Flatten Out - First Day MA Doesn't Close Higher
  
• Price Moves Higher on Lighter Volume - Price Makes a New High on Light Volume and 15 Day Average Volume is Less than 50 Day Average
  
• Price Hits % Target - Price Moves Set % Higher from Entry Price
  
• Price Hits R Multiple - Price hits (Entry - Stop Multiplied by Setting) and Added to Entry
  
• Price Hits Overhead Resistance - Price Crosses a Swing High from a Monthly Timeframe Chart from at Least 1 Year Ago
  
• Price Hits Fib Level - Price Crosses a Fib Extension Drawn From Base High to Low
  
• Price Hits a Psychological Level - Price Crosses a Multiple of 0 or 5
  
• Heavy Volume After Significant Move - Above Average and Heaviest Volume of the Last 5 Days 35 Bars or More from Breakout
  
• Moving Averages Begin to Slope Downward - Moving Averages Fall for 2 Consecutive Days
  
• Blow Off Action - Highest Volume, Largest Spread, Multiple Gaps in a Row 35 Bars or More Post Breakout
  
• Late Buying Frenzy - ANTS 35 Bars or More Post Breakout
  
• Exhaustion Gap - Gap Up 5% or Higher with Price 125% or More Above 200sma