Each of us is faced with the problem that when there is a trend, all the strategies are working like clockwork, but when the starting ramp movement "up and down", even good, proven Forex strategy suffer losses.So how do you determine when it is not necessary to go into the market?This will help us CMI (Choppy Market Index) - market volatility indicator .
CMI - a simple indicator that calculates the difference between the closing of the last (for now) of the bar and closing the N bars back, and then divide this value by the difference between the highest and lowest HIGH LOW among these bars.The resulting number is multiplied by 100 to give a visual representation of "instability" of the market in the range of 1 to 100.
indicator, and on this basis a strategy (see. Below), invented by Daniel Fernandez, material trade with CMI was published in the Augustroom Currency Trader magazine.
indicator set as well as any other if you have difficulties, see How to Install the indicator
As many have already guessed - the lower the value of the indicator, the more unstable the market.The higher the value, the more clearly the presence of a trend.The turning point (ie when we can say that the trend changed to the incomprehensible movement, and vice versa) corresponds approximately to the level of 50.
Also, the author offers us a strategy based on CMI indicator for trading on the daily charts.Interestingly, the proposed two sets of rules: for trading at volatile market and to trade in the presence of a trend.
CMI Rules strategy
Trading in volatile market
1. Buy when the moving average (blue line) below the indicator CMI 40 and CMI line of red.
2. Sell when the moving average (blue line) below the indicator CMI 40 and CMI line of green.
3. Exit the trade when CMI exceeds 50.
Trading on a trending market
1. Buy when the blue moving average above 60 and CMI line color - green.
2. Sell when the blue moving average above 60 and the line color CMI - red.
3. Exit positions when CMI is below 50.
According to the above strategy, I would not advise to trade, but rather given to understanding the work of CMI display, as well as its possible application to filter signals for trend-following strategies.
P.S.The blog was a group Vkontakte tradelikeapro.ru recently, I invite all readers to join the group "Community forex traders» .
Download CMI indicator (Choppy Market Index)