Swing Failures with ADX and EMA Confirmation

2 days ago

Setting Up the Indicator

• Default Settings:
  
• Override Swing Length: 5
  
• Override Lookback Bars: 25
  
• EMA 1 Period: 5
  
• EMA 2 Period: 8
  
• ADX Period: 14
  
• ADX Threshold: 20
  

Recommended Settings:

• For Low Timeframes (Scalping):
  
• Timeframe: 1-minute to 15-minute charts.
  
• Override Swing Length: 3 to 5
  
• Override Lookback Bars: 10 to 20
  
• EMA Periods: EMA 1 = 5, EMA 2 = 8 (default settings work well)
  
• ADX Threshold: Lower threshold (e.g., 15) to capture shorter trends.
  

For High Timeframes (Swing Trading):

• Timeframe: 1-hour to daily charts.
  
• Override Swing Length: 5 to 10
  
• Override Lookback Bars: 25 to 50
  
• EMA Periods: EMA 1 = 20, EMA 2 = 50 (adjust for smoother signals)
  
• ADX Threshold: Higher threshold (e.g., 25) to focus on stronger trends.
  

Swing Failure Patterns (SFP):

Bullish SFP:
Occurs when the price breaks below a previous swing low and then closes above it.
Suggests a potential upward reversal.

Bearish SFP:
Occurs when the price breaks above a previous swing high and then closes below it.
Indicates a potential downward reversal.


ADX and Directional Indicators (DI):
ADX Value: Measures the strength of the trend.

+DI and -DI Lines: Indicate the direction of the trend.
A crossover of +DI above -DI suggests bullish momentum.
A crossover of +DI below -DI suggests bearish momentum.

Exponential Moving Averages (EMAs):
EMA 1 (Default Period: 5): A faster-moving average.
EMA 2 (Default Period: 8): A slower-moving average.

EMA Crossover:
Bullish Crossover: EMA 1 crosses above EMA 2.
Bearish Crossover: EMA 1 crosses below EMA 2.



Interpreting the Signals
Bullish Entry Criteria:
Bullish SFP Identified:
The indicator plots an "SFP↑" label below the bar.
EMA Confirmation:
EMA 1 crosses above EMA 2.
ADX Confirmation:
ADX value is above the threshold.
+DI is above -DI.

Optional DI Crossover:
A "DI+↑" label appears, indicating +DI has crossed above -DI.
Bearish Entry Criteria:
Bearish SFP Identified:
The indicator plots an "SFP↓" label above the bar.
EMA Confirmation:
EMA 1 crosses below EMA 2.
ADX Confirmation:
ADX value is above the threshold.
-DI is above +DI.
Optional DI Crossover:
A "DI-↓" label appears, indicating +DI has crossed below -DI.

Trading Strategies
Scalping on Low Timeframes:
Objective: Capture small price movements within a short period.

Best Used When:
Market shows increased volatility.
During major market sessions (e.g., London or New York sessions).

Approach:
Use the lower override swing lengths and lookback bars.
Be quick to enter and exit positions based on the signals.
Set tight stop-losses just below/above recent swing points.

Risk Management:
Keep position sizes small due to the higher noise on low timeframes.
Use tighter profit targets.

Swing Trading on High Timeframes:
Objective: Benefit from larger price movements over several days or weeks.

Best Used When:
The market is trending strongly.
Economic news or events support potential trend continuation or reversal.

Approach:
Adjust EMA periods to 20 and 50 for smoother signals.
Increase the override swing length and lookback bars.
Allow trades more room to develop, using wider stop-losses.

Risk Management:
Use position sizing appropriate for longer-term trades.
Consider fundamental analysis alongside technical signals.

Optimizing Entries
Wait for Confirmation: Ensure all conditions are met before entering a trade.
Use Additional Indicators: Combine with support/resistance levels, Fibonacci retracements, or other indicators to strengthen the signal.
Monitor Market Conditions: Be cautious during low liquidity periods or major news releases.

Exiting Trades
Profit Targets:
Set based on recent highs/lows or key Fibonacci levels.
Use a risk-reward ratio of at least 1:1.5 or higher.
Trailing Stops:
Move your stop-loss in the direction of the trade as it becomes profitable.
Exit Signals:
Opposite SFP signals.
EMA crossovers in the opposite direction.
DI crossovers indicating momentum shift.

Additional Tips

Backtesting: Test the indicator on historical data to understand its performance.
Customize Parameters: Adjust settings based on the specific asset and timeframe.
Stay Disciplined: Stick to your trading plan and avoid emotional decisions.

Education: Continuously learn and stay updated with market trends.



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