The last part of the algorithm is the Volume and Volatility Indicator. This indicator’s purpose is solely to reduce losses by only signaling into trades that look to offer enough volume to add some oxygen to the trend. If the price has no volume then it is not going to trend in the desired direction.
The last piece of the algorithm was introduced at the end because this is solely an add on to the existing pieces of the algorithm. Its only purpose is reducing trades that would have otherwise been entered and the outcome was a loss.
To see the volume indicator in action with the other pieces of the algorithm creating a symbiotic relationship watch this video here.
In the next section we explain how to enter a trade using your algorithm.
The first step is for the price to cross over your baseline and close on the other side of it. Although price cannot cross too far, it must remain within 1 ATR distance with all of your indicators signaling before you can enter into the trade.
If the price were to go over the 1 ATR zone and close before your other entry indicators signaled in conjunction with entering the trade at the same time, you cannot take the trade.
This is because when you enter a trade you want to enter at the best price possible and we will only accept a 1 ATR zone of entry as we see this area as the place providing the most value.
Anything outside this area is considered too expensive of a location to enter a trade.
So, if price has crossed over the baseline but went outside of the 1 ATR zone before all indicators signaled we will wait for the price to pull back to the 1 ATR zone. From that point, when all of our indicators signal to enter we will try to enter again.
If the price crosses back over the baseline in the opposite direction this is like hitting the reset button on all of the basic entry rules.
The next type of entry is called a continuation trade. A regular entry must occur first then either one of your indicators must signal you to get out of the trade. This wouldmost likely will be your exit indicator but it could be your primary or secondary indicator signaled for you to exit as well. If this happens you must exit your trade but you are all set to re-enter or continue back into the trade with this new type of re-entry trade.
You can call this a continuation trade or you can call it a re-entry trade because essentially you are just going to re-enter the trade but use less indicators.
You are ready to re-enter when your primary and secondary indicators are signaling it is okay and good to go. You can enter without consideration of the 1 ATR rule or the volume indicator. You just jump back into the trade and re-enter, ( or continue ) riding the trend until either your exit, primary, secondary indicator signals to exit or the price crosses back over the baseline. If price crosses over the baseline then it hits the reset button and you start over again with the basic entry rules.
This strict set of rules allows you to make a system of trading that can handle all of the variables of price actions in a systematic method. If you make a systematic trading method you will not use your daily feelings or any other outside influences to decide your trading. You will only follow your system.
This is why it is a good idea to download the software simulator and practice a systematic method of trading and making sure you are comfortable with all the rules before starting with real money.
Before beginning understand you need to back test your strategy before live accounts. This is a great back testing software: