This Forex trend indicator is included in our strategy building and testing software (Download Smart Forex Strategy Tester).
This post continues the topic we started in our latest post on the adaptive trend following strategy. All figures refers to the example of a trend that we covered in that post.
Our Forex Trend Indicator Works In Real Time
For automated trading strategies that we develop and test with our software, we only use indicators that work fast and a value is available ideally at every tick.
Our trend indicator works in real-time as well. It is recalculated on every coming tick using a sliding window of a fixed length starting at the current tick.
Let’s see how the indicator works. The figure below covers the same interval as the figure 2 in the post on trend following strategy.
There we noticed, that staying in the market in points C and especially D is not easy – risk looks very high and you might want to take profits.
The trend indicator is plotted with a blue line. It starts from the horizontal segment on the left, which is a zero line. The indicator is zero, as there is not enough data yet to fill the full computation window.
But once the indicator start getting calculated (starting form the point 1), trend indicator yeilds positive values – until point 2. So we can see that if our automated strategy used this indicator, it would not exit the market in C nor in D.
You can download the latest Smart Forex Tester software and try analyzing the trends yourself. Use the trend-checkbox on the left panel to turn the indicator on or off. You can also adjust the computation window size with a slider control (requires data file reload!).
Starting from the next release, this Forex trend indicator will be also made available to trading strategies as a signal. Then we will include it in our trading strategy and update the below example to see how will trend indicator works in practice. Stay tuned!
Example Strategy Without Using A Trend Indicator
To get a baseline, let’s check how well our simple day trading strategy works in trending market. The strategy uses peak point detection algorithm to enter the market, but it is “not aware” of any trends.
We can see that market entry in pivot points is flawless. But the direction is wrong. So it will be really exciting to improve the strategy by adding the trend indicator and retest.
Meanwhile, you can run this test yourself. Download the software bundle and use the data file named week1_1.db.