Combining Indicators to Create a Trading Strategy, Class 3
Written by James Goulding
www.jamesgoulding.com
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Contents
Introduction ..................................................................................................................................... 1
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Introduction
In the first class we categorized a few indicators by Trend and Direction.
In the second class we covered two topics. The first topic looked at what indicators a trader shouldn’t
combine on a chart. The second topic covered how to combine some indicators to create half of a
trading system. We answered the first two questions in the group of four questions that we use to
build a system.
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The four questions:
1. Why are we getting in the market?
2. Where are we getting in the market?
3. Where’s are profit target?
4. Where’s are stop?
We answered the first two questions:
1. Why are we getting in the market?
a. We were waiting for a reason to get in. That reason came in the form of a trading
signal. The trading signal was produced by a 5 minute chart with the backing of a 30
minute chart.
b. There were actually 3 signals that can be written in the form of an IF, THEN
statements off of the 5-min chart. To keep it simple, let’s just write down what
occurred on the 5-min chart and leave the 30-min chart out of the equation for now.
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Let’s answer questions #3 and #4.
We are short at 110.13
There are several ways to get out of the trade. What you’ll see below is simply using the Average
True Range / Historical Volatility as a guide to get out. It looks more complicated than it is. That’s
because we have to define everything for the computer.
Imagine walking out of a building and hailing a cab, getting in and giving the driver directions to
your destination. Try breaking that down into IF THEN statements.
Let’s introduce a new indicator Average True Range / Historical Volatility
ATR at 12:30 was .03. When using this indicator simply multiply by 3.
• The ATR = Average True Range. In Telerate this indicator is listed under Historical Volatility
(HV).
• When charting fixed income instruments simply multiply ATR/HV by 3 to get the approximate
average range. Then, add a tic for bonds, add a 1/2 tic for the 10s and 5s. Always use a
minimum of 1 1/2 tic stops in ZN, and ZF now matter what the ATR/HV. Read on.
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Thank you,
Jim Goulding
www.jamesgoulding.com