Many well-known technical tools are based on historical data. Their formula contains the analysis of a certain number of candles in the past and the averaging of this indicator. But there is another, less well-known group of instruments – Forex digital indicators. What is it, what are and how to earn with their help, read on.
Digital Forex Indicators are a group of algorithms for analyzing market trends that are built entirely on mathematical techniques. Despite the fact that the market is chaotic, it contains some patterns that are displayed on the screen as values. This may be the statistics of the average movement for the previous day or another period. The result of the display of the indicator is not graphical (lines, charts), but digital, statistical. Traders prefer to use tools that visually and visually reflect the situation, because Forex digital indicators are rather technical in nature and are used to build graphical combined analogs (see the example below)
All digital models belong to the class of spectral analysis of market conditions. This is a separate group of tools – software applications. It is considered that the method of averaging historical data in classical technical indicators is too coarse, reducing the effectiveness of trading signals. Digital quotes are built on a statistical array of information converted into a “frequency” of the market (fluctuation duration).
Spectra based on Fourier theory:
- low frequency range (0-4) is a long-term trend longer than 2 months;
- average frequency range (5 – 40) – correction with a duration of 10 – 60 days;
- high frequency range (41 – 130) – price noise lasting less than 6 days.
Examples of constituent elements of spectral analysis using the ATCF method (Adaptive method of following the market trend):
- FATL is a graphical display of a digital indicator, which is a fast adaptive model built using a low-pass low-pass filter.
- SATL – slow adaptive price line;
- RFTL – trend reference line (Fast);
- RSTL – trend reference line (Slow);
- FTLM (Momentum fast trend line). Calculated as the difference between FATL and RFTL;
- STLM (slow trend line Momentum). Calculated as the difference between SATL and RSTL.
FTLM according to the calculation formula is similar to the Momentum indicator. Only in the formula, it is not the closing price that is taken into account, but the quotation values smoothed after filtering with digital indicators. There is no need to go deep into the details of spectral analysis and the mathematical approach.
Digital Indicator Trading Tactics
The strategy is based on the “Digital filter” indicator, which is based on 4 types of filtering described above: FATL, SATL, RFTL, RSTL. The filters will be used to modify the classic Bollinger Band technical tool. The timeframe is H1, the currency pair is EUR / USD.
Digital filter settings:
- TimeFrame = current;
- FilterType = 2;
- Price = 0;
- Lenght = 0;
- Phase = 0.0;
- LenghtForBands = 52;
- Interpolate = true.
Opening a long position is at the next candlestick after the indicator has risen above the upper border of the Bollinger Bands. Stop loss – 15 points. We close the position by 50% after a profit of 10 points, the rest is fixed by trailing.
Opening a short position is similar, provided the indicator leaves the bottom of the channel. If the signal candle is too large relative to the neighboring body, it is not recommended to enter the market.
Unlike the often-criticized ATCF model, this strategy, which uses some of the Forex digital indicators ATCF, gives more input, although less profitable. We download an indicator for free from the Internet, download it to MT4, test and share impressions in the comments. If for some reason you could not find the template, write about it in the comments with the address of the mail and we will send it to you for free!