Introduction to the Trend Power and Direction Indicator
Momentum breakouts are one of the most effective types of trade entries. These trade entries often result in strong run moving in the direction of the momentum breakout. The Trend Power and Direction Indicator is a trading tool developed to help traders capture trading opportunities based on momentum breakouts.
What is the Trend Power and Direction Indicator?
The Trend Power and Direction Indicator is a momentum indicator which is based on the Bollinger Bands.
The Bollinger Bands is a very versatile technical indicator. One of its possible uses is as a momentum breakout indicator coming from a tight market range. Traders can identify momentum breakouts based on price candles closing outside the Bollinger Bands. The Trend Power and Direction Indicator is based on the same concept.
This indicator shades price candles with different colors whenever it detects momentum breakouts.
Below are the colors that indicate a bullish momentum breakout.
- Aqua – strongest bullish momentum
- Lime
- Yellow Green
- Medium Sea Green
- Sea Green
The following are the colors that indicate a bearish momentum breakout.
- Magenta – strongest bearish momentum
- Red
- Orange Red
- Crimson
- Brown
How the Trend Power and Direction Indicator Works?
The Trend Power and Direction Indicator has an algorithm which is based on multiple underlying Bollinger Bands. These Bollinger Bands are set to different standard deviation values. The color of the candle changes whenever a candle closes at a value which is beyond the outer lines. of the underlying Bollinger Bands. The color of the candles also depend on which Bollinger Band was breached. For example, the candles will change to magenta if the candle closes at a lower value compared to the lower line of the Bollinger Bands set to a standard deviation of three.
How to use the Trend Power and Direction Indicator for MT5
The Trend Power and Direction Indicator has several setting options which traders can modify.
“BB smoothing period” allows users to modify the moving average used as the midline of the underlying Bollinger Bands.
“First level deviation”, “Second level deviation”, “Third level deviation”, “Fourth level deviation”, and “Fifth level deviation” allows users to modify the standard deviation value of each underlying Bollinger Bands.
“Indicator smoothing method” allows users to select the type of moving average used for the midline of the Bollinger Bands.
“Price constant” allows users to select the price point used to calculate for the midline of the Bollinger Bands.
Buy Trade Setup
When to Enter?
Open a buy order if the candles change to a color which indicate a bullish momentum breakout.
When to Exit?
Close the trade as soon as the candles revert back to its normal colors.
Sell Trade Setup
When to Enter?
Open a sell order if the candles change to a color which indicate a bearish momentum breakout.
When to Exit?
Close the trade as soon as the candles revert back to its normal colors.
Conclusion
The Trend Power and Direction Indicator is an effective momentum indicator. Traders can use this as a momentum-based trade entry signal. However, it should be in confluence with other technical indications for it to be more effective.
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