Topic: Indicator dev. request: trending and range bound market filtering
Several times I have faced whith these kind of questions when I developing the strategy:
- How to develope and filter strategy that only works either trending or range bound markets ?
- How to easily determin range bound or trending markets ?
- If it is easily determined then how can I most easily benefit from this ?
There are a special indicator to filter range bound or trending markets - Squeeze Break Indicator
It is quite interesting indicator and I copied the description form the MQL4 website at: http://codebase.mql4.com/5520 (there are also a download link for the indicator itself).
This indicator is based on a strategy mentioned in John Carter's book, Mastering the Trade. The basic idea behind the strategy is that markets tend to move from periods of low volatility to high volatility and visa versa. The strategy aims to capture moves from low to high volatility.
For gauging this he uses two common indicators - Bollinger Bands and Keltner Channels (ok, not so common!). He also uses the Momentum indicator to provide a trade bias as some as the Bollinger Bands come back outside the Keltner Channels. The Squeeze_Break indicator combines this into a signal indicator and has the following components:
1. A positive green histogram means that the Bollinger Bands are outside the Keltner Channels and the market is lightly to be trending or volatile.The stronger the histogram the stronger the directional price move.
2. A negative red histogram means that the Bollinger Bands are inside the Keltner Channels and the market is lightly to be consolidating. The stronger the red histogram the tighter price action is becoming.
3. Incorporated into the indicator is a Momentum indicator. According to the strategy J. Carter goes long when the Bollinger Bands break outside the Keltner Bands and the Momentum indicator is above the zero line. He goes short when the Momentum indicator is below the zero line.
4. I've also added other indicator info in the top left hand corner to give a broader idea of current market conditions.
5. The indicator provides audio alerts when a potential breakout is occurring. This indicator tends to be better with the larger timeframes. Personally I don't trade purely on an alert signal alone. It's just a handy tool for warning me of changes in price action and potential breakouts.
I hope that someone will port the basis of this indicator (pints 1-3, without the momentum indicator) into the FST and FSB. There should be the following settings available:
Squeeze Break rises
Squeeze Break falls
Squeeze Break is higher than the level line
Squeeze Break is lower than the level line
Squeeze Break crosses the level line upward
Squeeze Break crosses the level line downward
Squeeze Break changes its direction upward
Squeeze Break changes its direction downward
Squeeze Break is higher than the level line and changes its direction upward
Squeeze Break is lower than the level line changes its direction downward
Squeeze Break is higher than the level line hanges its direction downward
Squeeze Break is lower than the level line changes its direction upward
With this indicator there is a great way to filter the strategy if I want to trade only in range bound markets (or trending markets).
You can get this indicator for FST/FSB from here: http://forexsb.com/forum/post/4371/#p4371