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Old 10-06-2011, 10:12 PM   #1

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Lightbulb ADX, RSI, EMA Envelope Reversal Scalp Tools

Hi, this is a refined version of a scalping reversal system that I had developed and posted previously. The post can be found here with many other alerts and indicators.
http://www.traderslaboratory.com/for...trategies.html
I will present the basics again to assist in understanding the specifics. This has mostly been used to trade forex, but I know that I had adapted it for MSFT on one of the link posts. I will later present the confirmation and extended technical tools, along with alerts, indicators, and Metatrader profiles in coming posts. The Metatrader profiles are a plug and play presettings, just install the indicators in the proper folder of the program files ( experts-indicators). Most of my original work was done on VT trader. I also have some unreleased complex, but very nice alert indicators I made for VT. I stopped working with VT due to the inconsistent data feed. I have traded live and taught this system with profitable results. It is useful that you can review the back filled charts and see clearly the results.
Due to this being part of a more complex system, I will decide about how many versions of the profiles, templates and indicators I will post. An additional note is that I prefer to use the USA (not UK but that may work also) version of forex.com Metatrader. If you are having problems with any of the profiles or specialty indicators use their free platform. They have some special attributes, like FXF attached to their symbols. Some of their platforms also have indices, stocks, and commodities to use this system with. It also offers many of the exotic crosses that I like to monitor. Also I trade on oanda, for the reasonably tight spreads. This is a scalping system, so beware of the large spreads on some pairs especially in the low volume hours.
The basics for the 5 minute scalp includes the 50 ema in magenta, and the 2 ema 50 envelopes (yellow). The inner envelope is set at the deviation of .018 (near 18 pips) for AUD or NZD crosses ; or .015 (15 pips ) for most all other crosses. The outer yellow envelope has the deviation of .036 for AUD or NZD crosses, .030 for most all other pairs.
I have attached a 5 minute NZD/USD chart. There are a few ways to look for the trade set up. First is that if the price has been below the 50 ema magenta for 4 hours or more, when price first comes up to the inner envelope above the 50ema; trade short back to the 50 ema. This is shown in the down trends of “A” and “C” .
As a confirmation that the downward trend is still powerful enough to make the short trade I introduce the ADX 60 (aka the Average Directional Movement indicator). If the yellow ADXR (main line- not the DMI ) is above the 12 level when the price crosses above the 50 ema, I consider it a valid set up. Of course the set up is basically the same for the upward trend. Price above the 50 ema for 4 hours, enter long when price falls to touch the inner lower envelope. The ADX rises with trend strength; it is not a normal oscillator indicator. Very important, make sure that the ADX level is still high from the major trend, not risen due to the reversal.
As for many scalping systems, beware of market openings, major news, or post weekend trend continuances. Also be aware of powerful trend reversal formations like double bottoms, triangles, or tight channels. A late entry can be used.
In an effort to find more trades, I show trend B. The price crosses the 50 ema many times, but the ADX level was still high when the price passed below the 50 ema previous to touching the lower inner envelope. As you can see, the long position trade back to the 50 ema was still profitable.
I like to add positions to this trade as the price moves against me, as in trend B. Also it is good to leave some runner positions as in trend B, the price exceeded the 50 ema by 36 pips. I use the outer envelope as a general stop loss, but since I am incrementally adding positions, I am flexible with my stops, especially after a long trend, a fast bottoming reversal, and a high ADX level.
I will later add other guides to assist with runners and exits at key levels. Daily pivots, 14 ema, 200ema, and a 650 ema.
Other posts will follow with attachments and alerts, so watching the charts is minimized. There are also other confirmation tools and strategies that I will share. Questions and improvements are welcomed. I am also going to post a major thread on correlation trading with some advanced programming that I developed, so keep an eye out for that if that interests you.
Attached Thumbnails
ADX, RSI, EMA Envelope Reversal Scalp Tools-5-min-scalp-basic.jpg  
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Last edited by Eric Johnson; 10-06-2011 at 10:20 PM.
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Old 10-06-2011, 10:32 PM   #2

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Re: ADX, RSI, EMA Envelope Reversal Scalp Tools

Quote:
Originally Posted by Eric Johnson »
Hi, this is a refined version of a scalping reversal system that I had developed and posted previously....

.
should have just continued with that thread instead of starting a new one...
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Old 10-06-2011, 10:44 PM   #3

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Re: ADX, RSI, EMA Envelope Reversal Scalp Tools

The old thread has so many detailed ideas on it, many that are not related to the new developments that I will present. There will be plenty coming to consider, it has been a busy year programming and developing.
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Old 10-07-2011, 05:43 AM   #4

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Re: ADX, RSI, EMA Envelope Reversal Scalp Tools

Will be reading regularly... goodluck!
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Old 10-07-2011, 06:02 AM   #5

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Re: ADX, RSI, EMA Envelope Reversal Scalp Tools

I can see that I need to correct my deviation numbers for the first post. I added an extra zero. Corrected would look like .18 deviation is approximately 18 pips. I need to give a name to the first strategy posted so I will refer to it as, “ Trend Hook”.
Here is the first alert indicator I will refer to it as the MA envelope alert. It can be modified to suit many purposes, and many moving averages. I will say that it took many versions to get an alert that did not slow down the program as it repeated. Turn off the alert or volume to prevent the repeat from distracting you.
When attached to a chart the default will make the alert settings display as a white envelope. Change your color settings to none to not have the display. The idea is to notice a lengthy up trend in progress. You want to be alerted when the price passes below the 50 ema around 6 pips to get ready to go long, enter trade when the price drops around 18 pips below the 50ema. You select TRUE for the “ alarm lower price below” option.

Here are the parameter settings.
The main menu tools –options-events allows for muting the alert sound
The above and below alert settings activate the alerts for price passing outside the alert envelope.
- LookbackCandles = 150; amount of historical candles computed, be safe and make it more than your moving average number
- MAperiod = 50;
- MAmethod = 1; this is the option to choose a SMA is zero EMA is 1 , smoothed MA is 2, linear weighted MA is 3
- AppliedPrice = 0; method of bar calculation, 0 is close of bar , median of bar is 4
- DeviationPercent = 0.06; Remember deviation notation .06 is approximately 6 pips, set this level to give you time to prepare for the trade.
- AlertCandle = 0; this can be used to alert if for example third preceding candle crossed your alert level setting is then 2
- ChartAlert = true;
- EmailSubject = ""; I have not tested the email capacity
As with many of my coding projects, I may have improved on others work, or done my own modifications and have tested all of them. They may not be super refined, or properly copyrighted to identify my changes. Please use and share them freely.
Attached Files
File Type: zip ##BEST ENVELOPES ALERT 3 time reduction.zip (1.1 KB, 187 views)
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Old 10-08-2011, 12:30 AM   #6

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Re: ADX, RSI, EMA Envelope Reversal Scalp Tools

This is a very nice complex unreleased indicator that I built only for VT trader. I wish I had the time to duplicate it for MT. Only read this section if you are interested in VT trader for forex. It has been many months since I built it, and the instructions are on the brief side. It actually has room for 2 sets of envelopes. Also the ADX is not included on these charts yet or built into the alert.

If you get this alert working it should allow you to just leave the program in the background scanning for trades. The alert lets you preset a filter for time (or bars passed) for price above or below the 50 ema. Then the alert sounds when price is in your preset range for the Trend Hook trade (with no ADX).

There is attached an environment import for VT trader , it is the .vtnev file. Do not use this if you are already set up. If you are new to VT use this- it will overwrite everything, but you will be set up.
Use the alert only .vttrs file to only try the alert . That is imported via the platform you should already have set up with my environment. To import go to the technical analysis panel; trading systems builder; import tab, browse for download.
Once it is imported to your platform it can be applied to a single chart by right clicking on the chart; attached trading systems; add. Make sure it is the simplified #4 the previous versions are not the same. Then to set up the properties/parameters look for the option with the inner MA envelope (set alarm value) . This is the level above or below the pink line (50 moving average) that the alarm will go off. Then below that you find the alert inner margin shutoff value, this is the value that limits the zone that the alerts operate in. So for example the alerts may only work between 1 and 5 dollars away from the pink line, you adjust this.
Near the very bottom of the parameters menu you find the bars back alert time section, this is you setting for how many hours you want to pass before your alerts are active. So each bar is worth 5 minutes. Three hours is 60 bars, i recommend about 70 bars. Close box with OK
A few notes. You can only have one alert working on one chart , delete the old one if needed. Also click on the alert name to modify it. For the new alert, due to the programming language, the best way to set the alerts is in a range of 1 to 4 dollars off the pink line.
For an up trend use the params enabled tab and select above inner alert and graphic (by checking) uncheck all others. What happens is that the alerts will not go off until 3 and a half hours have passed. When they do, you set the properties so you are not alerted until the price is about 5 dollars above the pink line. Your trade is below the pink line so you are alerted a bit earlier. This is somewhat different than the old alert system (if you use it make sure you use the #6 version of the envelopes alerts); with the old version for an up trend you would have used the lower inner margin settings for an up trend.

I think that both the upper and lower alerts can be left on for this alert, and it will scan multiple charts.
Attached Files
File Type: zip simplified_timed_alerts_4 alert only.zip (2.6 KB, 162 views)
File Type: zip timed VT alerts.zip (1.02 MB, 143 views)

Last edited by Eric Johnson; 10-08-2011 at 01:30 AM.
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Old 10-08-2011, 01:17 AM   #7

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Re: ADX, RSI, EMA Envelope Reversal Scalp Tools

Here is another general tool that I found for pairs that trend well. This is the idea that the 60 ADX can be used to ride a trend when it is above the 16 level. When the price on an up trend, comes down to the 50 ema; check to see if the ADX is more than 16. If it is, there is a good chance that the price will continue above the 50 ema at least 15 pips. Remember that the inner dotted envelope is 18 pips on the picture. There may be a drawdown, but you can add to your position if you have searched the backfill and this looks like a working strategy.
On the picture you can see examples of this continuance strategy with the white lines labeled A,B,C. For the Red line D , you may notice that the ADX has fallen, and do not make the Trend Hook trade by entering long.
Above the 28.40 (varies) ADX level is a warning that the trend is near exhaustion, so do not look for trend continuances. Here is a short list of the few currencies that trend well to get the idea and effectiveness for this strategy.
NZD/USD , AUD/USD , NZD/JPY
There are many others, I just encourage others to really look over their historical 5 minute charts before using this strategy. Tweak your levels to currency also. I have 2 nice ADX alerts that I have made, I will post them soon with setup advice. There is more details to using the ADX for true oscillation reversals coming also. Eventually I will release the large profile that I use that has all of these systems integrated, currencies custom tuned levels, and labeled for strategies used.
Attached Thumbnails
ADX, RSI, EMA Envelope Reversal Scalp Tools-adx-50-continuance.jpg  

Last edited by Eric Johnson; 10-08-2011 at 01:28 AM.
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Old 10-08-2011, 08:41 PM   #8

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Re: ADX, RSI, EMA Envelope Reversal Scalp Tools

I will be presenting a variety of tools for scalping 5 minute (later 1 hour) bars. I find that the advantage of having many tools to choose from is the following. The markets change daily, a trader may have to wait many hours for trending trades. When trends do form, the trade opportunity may be negated or compromised by many factors such as overnight wide spreads, or soon coming announcements. This kind of waiting and rejecting trades can lead to traders entering borderline or weak setups. It is best to have a variety of well researched trades to choose from, the best setups, along with the best pair spreads.

Although these setup ideas are related, each component has a high probability of success if traded independently. The additional tools are for confirmation and screening. It is nice to think that a single squiggly line indicator and some simple price action can see the future for highly leveraged precision scalps. I find that a combonation of filters and confirmations are worth the time to investigate and learn to use.

Now I will add the RSI to the ideas being presented. This is a basic oversold and overbought oscillator application of the 14 RSI. The advantage is identifying the currency pairs that trade well with it, and later adding the ADX as a reversal tool confirmation. On the picture you will notice I show a ATR 10 indicator on the bottom.
The RSI 14 has the 76 and 24 levels marked. When the indicator touches these levels, look for a 10-15 pip price reversal. This is a weak scalp, but often works as shown in examples B, C, D, and ran for many pips.
The stronger method is to use the price level of the RSI touch as an “assumed price return level”. This means that I will gradually begin stacking reversal positions, expecting price to return to the RSI touch level. If you look at the photo the assumed price return levels are shown on example A,F, and G with the colored horizontal lines. Notice that the drawdown for example F was near 100 pips. You could have barely gotten the 15 pips on the touch of the 24 RSI level, or better stacked gradually for a return to the assumed price return level.
Notice how the bottom ATR indicator can help evaluate the strength of your RSI trade. If the ATR is above the .12 level reversals are generally stronger. You can see in example F that the ATR level was very low and to be cautious.
Avoid tight price channel breakouts. The ATR can be used to see another kind of breakout to avoid. If the ATR has been very low for an extended period of time, the breakout of volatility can have weak reversals.
I grade and text on my charts the quality of RSI reversal potential. It is a school style A to F scale. Here are my top picks. AUD/CAD A, AUD/JPY A, CAD/JPY B, CHF/JPY C (make sure is in oscillating conditions), EUR/AUD B, and EUR/JPY C.
I posted an example of a channel breakout that RSI reversals should not be used on. This technique, like the others can involve large drawdowns, so do your own historical review and order sizing. I will soon post the RSI alert. This reversal strategy will have an ATR added to it to catch more moves and long trend reversals.
Attached Thumbnails
ADX, RSI, EMA Envelope Reversal Scalp Tools-rsi-reversal.jpg   ADX, RSI, EMA Envelope Reversal Scalp Tools-rsi-channel-avoid.jpg  
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