The Trader's Dynamic Index, or TDI is a really nice tool that could almost be used exclusively. I remember making one by scratch a few years ago and it wasn't until later that I found out someone had a name for it:) Funny:)
The TDI is basically a crossover of two RSI's surrounded by a bollinger band. It could also be an RSI and moving average crossover, depending on what TDI you have. The standard RSI settings are 2 and 7, which can lead to distance before they cross. The standard bollinger band setting is 34, and though I suppose it is used because it is a fibonacci number, I am not quite sure why that is the standard setting.
The drawback of this indicator is that it doesn't update until the close of the candle. If you get a big move against you, it will not show on the TDI until it has completed the move of that candle. On the other hand, if the candle retraces within itself, the TDI would have kept you in the trade. So, sometimes you would be out with less profit, other times you will continue the trade.
The minor crosses of the two RSI are often not worth trading against. Most often the best entry is a cross of the centerline of the bollinger band and the best exit is a cross to the inside of the upper/lower bollinger band. There are other ways to use it for trading too, and so it is really up to you which signal you want to follow. If you right click on the indicator and then click modify, the majority of TDI's have suggested trading rules written in the preface to the code.
Changing the RSI period only moves the graph up or down within the range. Normally the range is 32-68. You can experiment with different RSI settings and notice it merely moves the lines up or down, as a whole, and does not interfere with line crossovers. Some people trade according to the levels of 32, 50, and 68 though, so if this is important to you, then you will need to tweak it to get your desired results.
If you change the 2 to a 3 or higher, it will smooth out the line. If you change the 7 to a lower number, you will get faster crossovers. I don't really think it is necessary to change these values for most traders because they are either trading the level the line is on, or when it strikes the bollinger band. A setting of 2 is going to give a faster signal for either of those conditions.
The only thing that is suspect then is the 34 period bollinger band. While you can change this value to anything you want, I propose you consider something else that is outside the box, once you determine your preferred setting. Nevermind what setting you use, but why use only one? Just like a 10 period moving average on a 1HR chart is a 40 period moving average on a 15M chart, you can do the same thing with the TDI. For instance, if you use the standard 34 period bollinger band on a 15M chart, then try placing a 136 period bollinger band on top of the TDI indicator. Simply drag the bollinger band indicator on top of the TDI and let go. Input 136 periods, deviation "1", choose a color, and change it from Close to First Indicator's Data. You can now see the 1HR TDI and 15M TDI at the same time. You can do this for whatever timeframe you like to trade. The idea is to be able to see the TDI signal of your preferred timeframe, and the signal of a higher timeframe at the same time. Additionally, you might consider putting those same two bollinger bands periods you use on the TDI onto the price chart. Use deviation 1 on the indicator, deviation 2 on the price chart. Might mean something to you:)
If you like trading RSI, then one other trick is to use the slope direction line indicator. It reacts like an RSI on the price chart. So, if you like to trade to a particular RSI crossover and would like to see it on the price chart, you can use the slope direction indicator to create it.
The easiest way to determine how you want to use the TDI, or any indicator for that matter, is to draw a vertical line on a low price and another line on a high price. Observe the indicator's behaviour between the 2 lines and either adjust the indicator or make notes about how it identifies trading opportunities. I would further recommend to be sure there are some flat areas between your high and low values so you can also see how the indicator identifies those areas. You might find the TDI useful for this measurement too:)
The TDI is basically a crossover of two RSI's surrounded by a bollinger band. It could also be an RSI and moving average crossover, depending on what TDI you have. The standard RSI settings are 2 and 7, which can lead to distance before they cross. The standard bollinger band setting is 34, and though I suppose it is used because it is a fibonacci number, I am not quite sure why that is the standard setting.
The drawback of this indicator is that it doesn't update until the close of the candle. If you get a big move against you, it will not show on the TDI until it has completed the move of that candle. On the other hand, if the candle retraces within itself, the TDI would have kept you in the trade. So, sometimes you would be out with less profit, other times you will continue the trade.
The minor crosses of the two RSI are often not worth trading against. Most often the best entry is a cross of the centerline of the bollinger band and the best exit is a cross to the inside of the upper/lower bollinger band. There are other ways to use it for trading too, and so it is really up to you which signal you want to follow. If you right click on the indicator and then click modify, the majority of TDI's have suggested trading rules written in the preface to the code.
Changing the RSI period only moves the graph up or down within the range. Normally the range is 32-68. You can experiment with different RSI settings and notice it merely moves the lines up or down, as a whole, and does not interfere with line crossovers. Some people trade according to the levels of 32, 50, and 68 though, so if this is important to you, then you will need to tweak it to get your desired results.
If you change the 2 to a 3 or higher, it will smooth out the line. If you change the 7 to a lower number, you will get faster crossovers. I don't really think it is necessary to change these values for most traders because they are either trading the level the line is on, or when it strikes the bollinger band. A setting of 2 is going to give a faster signal for either of those conditions.
The only thing that is suspect then is the 34 period bollinger band. While you can change this value to anything you want, I propose you consider something else that is outside the box, once you determine your preferred setting. Nevermind what setting you use, but why use only one? Just like a 10 period moving average on a 1HR chart is a 40 period moving average on a 15M chart, you can do the same thing with the TDI. For instance, if you use the standard 34 period bollinger band on a 15M chart, then try placing a 136 period bollinger band on top of the TDI indicator. Simply drag the bollinger band indicator on top of the TDI and let go. Input 136 periods, deviation "1", choose a color, and change it from Close to First Indicator's Data. You can now see the 1HR TDI and 15M TDI at the same time. You can do this for whatever timeframe you like to trade. The idea is to be able to see the TDI signal of your preferred timeframe, and the signal of a higher timeframe at the same time. Additionally, you might consider putting those same two bollinger bands periods you use on the TDI onto the price chart. Use deviation 1 on the indicator, deviation 2 on the price chart. Might mean something to you:)
If you like trading RSI, then one other trick is to use the slope direction line indicator. It reacts like an RSI on the price chart. So, if you like to trade to a particular RSI crossover and would like to see it on the price chart, you can use the slope direction indicator to create it.
The easiest way to determine how you want to use the TDI, or any indicator for that matter, is to draw a vertical line on a low price and another line on a high price. Observe the indicator's behaviour between the 2 lines and either adjust the indicator or make notes about how it identifies trading opportunities. I would further recommend to be sure there are some flat areas between your high and low values so you can also see how the indicator identifies those areas. You might find the TDI useful for this measurement too:)
3 comments:
What do you think of setting RSI price to "0"?
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