Tradesignal provides almost 200 build-in technical indicators. Therefore, it is not always easy to find the right one – tailored specifically for your needs. However, it is quite easy to build your own custom indicator if you know exactly what and when you would like to see on your charts. As an example, I came up with the following investment idea: Buy if there has been a small correction in an uptrend – and show how to implement it within Tradesignal.
You can define “correction within uptrend” combining all two indicators. The Directional Movement Index could give you the trend direction, the Stochastic Indicator might show you the correction. However, you might not always like the complex calculation of the Directional Movement Index. The number of alerts generated by simple Slow Stochastic can be very annoying – always either overbought or oversold, providing no stable signal. Instead, you would like to see a smooth, simple indicator which catches the perfect retracement in any uptrend.
I will alter my strategy to get the desired result and use the oldest indicator around – the 200-day Simple Moving Average. I simply drag and drop a “Moving Average Simple” indicator onto my chart and set it to a period of 200 days. This indicator, as old-fashioned as it might be, is great for trading stocks. Everyone knows that it is advisable to buy stocks if they trade above the 200-day line. Hence, market trading above the 200-day line combined with rising 200-day line is a good indicator of the bullish trend. First task is completed.
Our next challenge is to find useful indicator to show market dips. I would like to use the Momentum indicator. It compares today’s price with the one 10 days ago – simple and easy. Market builds up momentum if the Momentum indicator is rising.
Now put the Momentum indicator onto your chart and see for yourself. It is easy to determine momentum status above and below zero, but it is hard to determine if the momentum is rising or falling with all that daily fuzz. This is visualized by the confusion of my arrows in Fig 1.