Moving Averages provide valuable insights into the current market trend and the possibility of trend reversals. When two or more Moving Averages are used a powerful trading system can be built based on crossovers of the Moving Average.
Sidus indicator employs four Moving Averages, namely, a) 5-period Linear Weighted Moving Average, b) 8-period Linear Weighted Moving Average, c) 18-period Exponential Moving Average, and, d) 28-period Exponential Moving Average.
These periods represent harmonic integers and therefore can identify trend continuation and trend reversals better than other Moving Average periods. The Sidus indicator uses both Exponential (EMA) and Linear Weighted Moving Averages (LWMA) in-order to ensure that signals are confirmed with both methods. The Exponential Moving Average method responds faster to trend breakouts whereas even though the Linear Weighted Moving Average is slower to respond it eliminates false breakout signals.
1) A BUY signal is generated when the 5-period LWMA crosses above the 8-period LWMA by DISTANCE points, or,
2) A BUY signal is generated when 8-period LWMA crosses above the 28-period EMA by DISTANCE points, or
3) A SELL signal is generated when the 5-period LWMA crosses below the 8-period LWMA by DISTANCE points, or,
4) A SELL signal is generated when the 8-period LWMA crosses below the 28-period EMA by DISTANCE points.
The 18-period EMA is not used for identifying signals, but rather as a reference line. For a signal to be valid, the 18-period EMA should be between the 5-period LWMA and the 28-period EMA. This reduces the chances of false breakouts.
Traders can place stop-loss below the nearest Swing Low for BUY signals, or above the nearest Swing High for SELL signals.
[You must be registered and logged in to see this link.]