Math and settings of TDI indicator
The Forex TDI indicator is usually not included in the standard set, but it can be freely downloaded in various variations on the net. It is located in an additional window, the signals are based on the RSI method – it is the parameter of the main oscillator that determines the general scheme, since all indicator lines are calculated on its data.
So, the general Forex TDI settings (the diagram shows the default values):
- green – RSI line (a value between 8 and 25 is recommended);
- red – moving average from the RSI line;
- blue channel – Bollinger Bands based on the RSI indicator (the lower the value, the more sensitive the lines);
- yellow – the line of the main market direction, a moving average built along all the previous lines.
For such a set of parameters, the critical levels 32 and 68 are usually distinguished. By default, the Close price is selected, the method of smoothing lines is a simple average. Experiments with other types of prices and methods of moving averages do not give much improvement.
TDI indicator trading signals
It is performed by analyzing the “traffic light”: green, red and yellow lines. The current direction is determined by the relative position of the green line relative to the red one: the trend is considered upward if the green line moves above the red one; if the green line is below the red line, the market goes down. The global trend is determined similarly – by the location of the yellow and red lines. If the dominant trend line is downward and the red line is below the yellow one, the trend is confidently bearish; a growing market needs a mirror image – the yellow line looks up and the red line moves above it.
Except for speculative moments, the yellow line of the main trend moves within the range of levels 32-68 – they identify tops, bottoms and reversals. The yellow line is below level 32, it means the market has reached a local minimum, therefore, a breakdown of the level by this line from the bottom up is likely to mean a reversal upward. The main line is above level 68 – a local top has been formed on the market, a breakdown of the level from top to bottom suggests preparing for a reversal towards the bears.
Market strength and volatility
The TDI indicator suggests evaluating these factors by the relative position of the blue channel of the Bollinger Bands and the RSI line. Reasoning similar to the classic indicator: if the channel boundaries diverge, and the green line forms distinct, “long” slopes up and down, then there is sufficient volatility in the market and there is a high probability of strong directional movements or the continuation of the current trend. If the channel lines converge, and the RSI line shows short “nervous” movements, the market is either already in a flat, or is preparing for this state. The greater the slope of the green line, the stronger the players in that direction. The closer the green line is to the balance zone (level 50), the less active the market is.
Of course, a narrow channel of Bollinger Bands and weak movements of the RSI line are observed before strong news or other speculation. At such moments, we definitely do not trust TDI signals – we expect a stronger reaction.
Trading tactics on the Forex TDI indicator with short targets (for scalpers): open a buy when the green line crosses the red in the direction of the uptrend. For sales – the same. Despite the presence of the necessary crossings, we skip the periods of an explicit flat.
Conservative tactics involve entering a position only when both lines (and the crossing point, of course) are above the yellow line for buying, or below for selling.
In any case, for an ideal entry on the Traders Dynamic Index, the Bollinger Channel lines must diverge, that is, the market must be sufficiently active. The Traders Dynamic Index indicator is recommended for use on assets with stable volatility – major currency pairs and basic crosses. Working period: not lower than H1-H4, confidence in signals on timeframes less than H1 is low. The TDI indicator is most effective in combination with trending instruments with signal confirmation by an additional oscillator, as implemented, for example, in the Trading Made Simple strategy.