Here the elementary trading algorithms obtained from the swing highs and lows of the base indicator are described.
List of Algorithms
The trading algorithms derived from the swings of the base indicator are:
Swing higher high
Swing lower high
Swing higher low
Swing lower low
Swing bullish divergence
Swing bearish divergence
The indicator implementing the swing is a proprietary version of Zig Zag, with a variable threshold.
Remember that the swing is calculated not on the base indicator itself, but on its moving average.
Hence:
Zig Zag of MA of base indicator higher high
Zig Zag of MA of base indicator lower high
Zig Zag of MA of base indicator higher low
Zig Zag of MA of base indicator lower low
Zig Zag of MA of base indicator bullish divergence
Zig Zag of MA of base indicator bearish divergence
For instance:
Zig Zag of MA of Force Index higher high
Zig Zag of MA of Force Index lower high
Zig Zag of MA of Force Index higher low
Zig Zag of MA of Force Index lower low
Zig Zag of MA of Force Index bullish divergence
Zig Zag of MA of Force Index bearish divergence
Description
Swing Higher High
This algorithm checks whether the MA of the base indicator has higher swing highs.
So the algorithm is true if and only if
swing high (MA (base indicator)) > previous swing high (MA (base indicator))
Swing Lower High
This algorithm checks whether the MA of the base indicator has lower swing highs.
So the algorithm is true if and only if
swing high (MA (base indicator)) < previous swing high (MA (base indicator))
Swing Higher Low
This algorithm checks whether the MA of the base indicator has higher swing lows.
So the algorithm is true if and only if
swing low (MA (base indicator)) > previous swing low (MA (base indicator))
Swing Lower Low
This algorithm checks whether the MA of the base indicator has lower swing lows.
So the algorithm is true if and only if
swing low (MA (base indicator)) < previous swing low (MA (base indicator))
Swing Bullish Divergence
A bullish divergence happens when the price has lower lows and the indicator has higher lows.
This algorithm checks whether the MA of the base indicator has a bullish divergence.
So the algorithm is true if and only if
swing low (price) < previous swing low (price)
AND
swing low (MA (base indicator)) > previous swing low (MA (base indicator))
Swing Bearish Divergence
A bearish divergence happens when the price has higher highs and the indicator has lower highs.
This algorithm checks whether the MA of the base indicator has a bearish divergence.
So the algorithm is true if and only if
swing high (price) > previous swing high (price)
AND
swing high (MA (base indicator)) < previous swing high (MA (base indicator))
Examples of Application
Bullish Divergence: Reverse of Negative Trend
For many indicators, important signals are given by divergences.
One of these indicators is the Force Index.
When the Force Index forms a bullish divergence, it is thought that the negative trend could reverse.
So select the
Zig Zag of MA of Force Index
bullish divergence
and put it in the Long tab to enter a long position when a bullish divergence occurs.