Traders Dynamic Index (TDI) - The Best Indicator For Your Strategy

All forex traders at some point of their trading activity wonder about the existence of the trading Holy Grail. Of course, because with its help the trader‘s life could change dramatically for the better. But traders‘ circles persistently repeat everywhere that the Holy Grail does not exist. What to do? There is a way out. In fact, it is sufficient to find a system that generates signals with a high rate of profitable trades and strictly abide by its rules. This will be the key to profitable and stable trading. Today we look at the Traders Dynamic Index (TDI) and a popular strategy based on it, giving simple and high probability entry signals.

TDI is based on a standard RSI indicator, determining the strength of the current trend, or if you like, the speed of price changes. To smooth the lines, an algorithm of moving averages is applied and Bollinger Bands are used to estimate the amplitude of oscillations. Through an integrated approach, just TDI alone can be used as a complete trading system. Actually, it gained its fame thanks to Trading Made Simple system (see below) as a tool to determine the current state of the market.

Indicator characteristics

Platform: MetaTrader4
Currency pairs: EURUSD, GBPUSD, AUDUSD, USDCAD, USDJPY, EURJPY, AUDJPY, EURGBP
Timeframe: H1-H4
Trading time: Round the clock
Recommended brokers: Roboforex

Settings

• The period for calculating the RSI indicator. Recommended value is between 8 and 25. The optimum period is 13.
• Selecting of the starting price for the Relative Strength Index. By default, the closing price.
• Standard deviation period. Used to calculate the volatility of the borders (Bollinger bands). The smaller the value, the more sensitive to changes are the lines.
• Fast RSI line smoothing.
• Smoothing method. By default, simple average.
• Slow RSI line smoothing period.
• The method of line smoothing.

Principle of work

The green line is a smoothed RSI line with a small period. The red one has a larger smoothing period and is called ‚signal line‘. RSI in its pure form is not used, its values are only used for calculations of fast and signal lines.

Bollinger Bands are also built on RSI values, but not on smoothed values. Orange Line - the average between the upper and lower channel lines. In fact, 3 of these lines show the strength of the market and the current volatility.

Signals

TDI indicator simultaneously indicates the direction and speed (power) of the current trend, which we use to determine the right moment to enter a trade. Despite the comprehensive nature, it is simple enough to understand the indicator - just to be able to detect signals and understand what they mean.

• The trend direction

In the first place, it is possible to use the indicator to determine the current trend. The green line above the red one signals a change in the short-term trend to upward. When the green one drops below red, short-term trend changes to downward.

The yellow line indicates the long-term trend. Most of the time it does not go beyond 68 and 32. When the line is pushed away from these limits, this indicates a possible change in trend.

• The market strength and volatility

The indicator also indicates the current strength of the market. Typically, the larger the slope of the green line, the stronger are the market players. If the line moves rather horizontally than vertically, we are dealing with an extremely inert market.

Expanding of Bollinger Bands indicates an increase in volatility. Narrowed bands, on the contrary, mean the reduction in volatility and market weakening. In the case of a strong narrowing of bands, you should expect a release of some significant reports or other news that could move the market dramatically. In such cases, it is better to temporarily refrain from trading.

• Trading Signals

First, let’s consider the tactics for scalpers. If you are trading with short-term goals, you need to open the Buy deal when the green line crosses the red one in the direction of the upward trend.

Similarly, a deal to sell should be opened when the green line is below the red one.

If you are a more conservative trader, you should enter a buy position only when both lines are above the yellow one. Accordingly, to sell both green and red lines must be below the yellow line.

There is also a variation of the strategy for the mid-term position with a retention time of the transaction from a few days to a few weeks. Rules are the same as for a conservative strategy, except that all the three lines should be located above the 50 level in the case of buying and below - in the case of selling. Ideally, Bollinger must indicate an increased volatility, ie. the lines must diverge.

Trading Made Simple

Now we go directly to the sensational trading strategy. Unfortunately, the author passed away due to his age, but the TS continues to grow, averaging nearly 4000 pages in the original branch.

In addition to the TDI indicator, we will use Heiken Ashi and Stochastics.

It is best to enter a buy position when the green line crosses the red one bottom up within the first two Heiken Ashi candles. The same is true in reverse - for sale. That is, both indicators should show the trend change approximately at the same time.

To confirm we use stochastics with parameters 8/3/3. In the case of the purchase, Stochastic has to be in the oversold zone, in the case of sale - in the overbought zone. If Stochastic is in the space between levels 80 and 20, look at the slope of the line. Stochastic slope must be greater than 30 degrees in the direction of the main signal.

Close the deal when the green line begins to bend or shows signs of a reversal, becoming horizontal.

Set stop-loss at a minimum or two candles back high, but not less than 20 points. Take-profit set twice as large as stop-loss. As a rule, it is about 40 points. Here it is possible to combine the two approaches breaking the position into two parts. One part close at the Green Line signal set a take profit on the second one.

Consider a few examples on the H4 chart, EURUSD.

• Here, we got a signal in the first two Heiken Ashi candles. Stochastic shows a bias in this case of more than 30 degrees. Set stop-loss at the two candles back max - 30 points, take profit set at a distance of 60 points. Exit the transaction when the green line changes direction. The result is 24 points.

• The intersection of the green and red lines occurred on the first Heiken Ashi candle. Stochastic is in the oversold zone. Opening a buy position, the stop-loss set at 20 points, take profit at a distance of 40. Get out of position at the change of the Green TDI Line direction. The result is 10 points.

• The intersection happened in the first two candles. Stop-loss is set at a local extremum, take profit at a distance of 80 points. The deal is closed on the signal indicator, but as we discussed earlier, in some cases it is possible to divide the position into two parts - the first one we close with a take profit, the second one – by the signal. In this case, the transaction was closed with almost no profit, the result +4 points.

If Stochastic is between the 20 and 80 levels and thus has no clear-cut direction, we ignore the TDI signals. If the Stochastic enters overbought or oversold zone, we don‘t look on the angle of slope.

Conclusion

The author argues that with the passage of time, anyone can achieve the performance of 85% successful trades, trading as described. Some manage to get even better results by trading only one TDI indicator. To receive better signals an older time frame can additionally be used. That is, at first we obtain an H1-H4 signal, then go to M5-M15 signal and wait for a signal in the same direction. Closing the deal on the same rules, but on a small timeframe.

TDI indicator works by itself, but with the help of additional filters or other TF, we can get a better signal to make the trade more effecient. You can come up with your own filter or use one of the proposed ones - each of us has some special indicator, that we feel most comfortable to work with.

Download Trader’s Dynamic Index indicator

Regards, Michael

ForexTraderPortal.com