2 period low simple ma 2 period high simple ma 9 period least squares ma
The trend is determined by the angle of the moving averages, current close relative the the 9 least squares ma (lsm) and the current close relative to the prior two periods high and low.
When there are consecutive closes inside the prior two candles high and low then a range is signaled:
In ranges the buy zone is between the lowest low and the lowest close of the current range. The sell zone is between the highest high and the highest close. The zones are adjusted as long as the new close is within the prior two candles range:
When price closes above the 2 high ma and the 9 lsm then a bull trend is signaled if all moving averages are angled upward (as seen at #4 in the chart above and #1 the chart below ). If the 9 lsm and / or the 2 low ma continue to angle downward, following a close above the 2 high ma and 9 lsm, then a prolonged range or reversal is expected (#2 in the chart below):
During a bull trend the buy zone is between the 2 low ma and the 9 lsm. The profit target is the 2 high ma:
During dip buying opportunities price should resist closing below the 9 lsm. If there is one close below the 9 lsm then it is a canary in the coalmine that tells us to proceed with caution. This will often signal a range, based on the conditions outlined above. To avoid a prolonged range, or reversal, price needs to immediately react in the direction of the prevailing trend:
If the moving averages are angled down and the most recent close is below the 2 low ma and 9 lsm then trend is fully bearish:
During a bear trend the short zone is between the 2 high ma and 9 lsm. The profit target is the 2 low ma:
When the 2 high ma angles down and the 2 low ma angles up while price closes inside both mas then it indicates a cma squeeze:
Volatility is expected in the direction of the breakout following the squeeze. In this situation traps / shakeouts are common. If there is a wick outside the cma, with a close inside, then it indicates a trap / shakeout. If there is a close outside the 2 high / low ma then it signals a breakout.
A trend is considered balanced when the 9 lsm is roughly equidistant from the 2 low and 2 high mas. If the 9 lsm crosses the 2 high or 2 low ma then it signals exhaustion / imbalance.
For a stop loss I use the prior three periods low, for bull trends, and the prior three periods high for bear trends. I would expect other reliable stops, such as the parabolic sar or bill williams fractal, to be effective as well. The default moving averages should be very effective on all timeframes and assets classes, however this indicator was developed for bitcoin with a focus on higher timeframes such as the 4h, daily and weekly.
As with any other technical indicator there will be bad signals. Proceed with caution and never risk more than you are willing to lose.
I love how you and other crypto ppl have brought life to new trading techniques, i also love thinking through some of these things but also enjoy testing them...thanks for sharing and will get it a go.
shustin
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I use similar indicator with similar long/short signals. My auto-trading SP500 stocks with this my system was not successful. What was your experience ? did you autotrade ? did you select just a few markets?