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TOP 3 Entry Indicators For Day Trading & Swing Trading (for Beginners) - YouTube
Channel: The Secret Mindset
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The development of a trading strategy is a
complex process, but the start of the process
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is always the entry idea.
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The entry idea might be as simple as going
long after a candle close, or as complex as
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waiting for one‐third retracement in the
third wave of an Elliott wave cycle, after
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a double MACD divergence.
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For many, the entry idea comes from the study
of charts after they identify recurring up
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or down moves that seem to happen after a
certain chart setup.
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If you find a good entry idea, the rest of
the development process is pretty straightforward.
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Some traders use price action to find an entry,
while other prefer adding an indicator for
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an extra layer of confirmation.
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In today’s video, we’ll discuss about
market entries and I will share my favorite
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indicators that help me to pull the trigger
on a trade.
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Many will disagree with the statement that
the entry is the most important element in
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developing a trading strategy.
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If they’re trend‐followers, they say anyone
can spot a trend and jump onboard, but it’s
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when you get out that makes the difference.
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Sure, when you get out is important, but the
entry determines how soon and how quickly
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you find profit on a trade.
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If you’ve got a good entry, you can get
out randomly and make a profit, on average,
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but you can’t exit randomly and make a profit
without a good entry, no matter how good your
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exit is.
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The entry is your edge, just like the house’s
edge in a casino.
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Good entries have a power and persistence
that are proportional to the number of bars
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used for the setup logic.
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Bars are information.
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One bar tells you little, but the more you
have the better idea you should have of what’s
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next.
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If your entry uses 10 bars of information,
it will have little forecasting power.
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If your entry uses 20 bars of information,
your profit push should be higher and last
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longer than the 10‐bar entry.
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Similarly, with 50 bars of information, you
get a bigger profit push and longer persistence.
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You get the idea.
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So, where you enter your trade can have a
massive impact on whether you come out a winner
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or a loser.
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Two of the most popular forms of technical
trading are using indicators and price action
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trading.
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When using indicators, traders are generally
looking to execute a trade based on an indicator
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signal.
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Similarly, when trading naked price action,
traders are looking for certain signals to
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execute a trade.
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For example, if price forms a bullish engulfing
candle, they will execute a buy trade.
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Similarly, if the trader identifies a bearish
pin bar, they will execute a sell trade.
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While both these strategies are effective,
combing the two approaches can lead to better
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opportunities and stronger.
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Indicators, if used in conjunction with an
analysis of the market structure and price
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action, can be very powerful tools as a support
to your initial analysis.
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So let me share my favorite indicators I use
to enter a trade.
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1.
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First indicator is Stochastic
The STOCHASTIC indicator shows information
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about momentum and trend strength.
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The indicator analyses price movements and
tells us how fast and how strong the price
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moves.
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Stochastic indicator analyzes a price range
over a specific time period or price candles,
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taking the absolute high and the absolute
low of that period and comparing it to the
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closing price.
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The stochastic oscillator is centered around
the assumption that during upward trends,
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closing prices will move towards the higher
end of the price range nd during a downward
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trend, prices tend to close at the lower end
of the range.
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The indicator consists of two horizontal lines
and two lines oscillating in between the indicators'
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range of 0 to 100.
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The oscillating line is labelled %K while
the moving average (of %K) line is labelled
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%D.
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As an entry indicator, the stochastic oscillator
can be used to:
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• Determine overbought or oversold signals;
• Identify a crossover between the two lines
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of the oscillator
• Determine the trend direction;
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• Identify divergence signals.
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Now very important, all the signals must be
used in conjunction with an analysis of the
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market structure and price action.
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Basically the entry signal must occur at an
important level or support or resistance.
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So before considering taking an entry with
an indicator, you must mark all major support
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and resistance levels on your chart, as they
could become relevant again if the price approaches
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those areas.
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The basic trading method for using support
and resistance is to buy after a Stochastic
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entry signal near support in uptrends or at
the parts of ranges or chart patterns where
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prices are moving up and to sell a Stochastic
entry signal near resistance in downtrends
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or at the parts of ranges and chart patterns
where prices are moving down.
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Generally, when using a Stochastic as a signal
to enter, you look for crosses of the fast
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momentum line and slower momentum line.
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In order to identify a buy signal, you should
look for points where the %K line crosses
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above the %D line.
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Alternatively, the sell signal arises when
the %K line crosses below the %D line.
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Remember, around support and resistance levels.
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Overbought and oversold signals are noticed
when the indicator takes values above 80 or
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below 20, which serve as a threshold.
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When the indicator value falls below 20, an
oversold alert appears while a value above
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80 indicates an overbought signal.
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However, the misinterpretation of overbought
and oversold is one of biggest problems and
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faults in trading.
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Markets can stay in overbought and oversold
conditions for weeks and months, so an entry
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relying on these conditions is a guaranteed
way to lose capital in the long run.
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I would take overbought or oversold signals
only when the market reaches a KEY support
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and resistance level, and even then I would
be careful with my position sizing.
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A better entry offered by the indicator is
the divergence.
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You can spot a divergence when the price doesn’t
move in the same direction as the stochastic
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oscillator lines.
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Namely, when the price has higher highs while
the oscillator has lower highs, it signals
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potential bearish divergence.
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If the price has lower lows and the stochastic
oscillator has higher lows then it is an indication
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of bullish divergence.
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Again, remember that the correct reading of
the oscillator means that you have primarily
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identified the overall current market conditions
and you marked the correct support and resistance
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levels.
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2.
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Second indicator is ADX
The ADX provides information about momentum
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and trend strength.
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Since the market is in a strong tend only
about 30% of the time and is sideways about
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70% of the time, this indicator is used to
capture the period when the market shows significant
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trending or directional behaviour.
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The ADX indicator comes with 3 lines: the
general ADX line and the two DI lines.
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The entry signals are offered by the DI lines
because the ADX line only measures trend strength.
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A rising ADX means that the trend is gaining
strength, a falling ADX shows a trend that
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is losing momentum or reversing and a flat
ADX shows a sideways range.
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The values of +Di and -Di are based upon the
assumption that when the trend is up, today’s
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high price should be higher than yesterday’s
high price (+Di) and when the trend is down,
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today’s low price should be lower than yesterday’s
low price (-Di).
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When the DI lines cross each other, they give
a signal; when the positive DI line crosses
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above the negative DI line, it means that
the highs and lows of the previous candles
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are both moving higher which confirms an uptrend.
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When the red DI line crosses above the green
DI line, it shows that over the past candles,
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price has been moving down and the lows and
highs are going lower.
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Basically, when the +Di line is above the
-Di line you should be long and when the +Di
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line is below the -Di line you should be short.
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Remember what we’ve talked about Stochastic.
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The same principles apply here.
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All ADX signals must be used in conjunction
with an analysis of the market structure and
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price action.
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ADX entry signals must occur at important
levels of support or resistance.
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3.
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Third indicator is Fisher Transform
Fisher Transform indicator highlights when
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prices have moved to an extreme, based on
recent prices.
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This may help in spotting turning points in
the price of an asset.
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It also helps show the trend and isolate the
price waves within a trend.
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The oscillator moves above and below a zero
line and has clear and sharp turning points.
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This simplifies the identification of trend
reversals.
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The indicator consists of two lines.
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They are the Fisher transform line and the
signal line.
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This is quite similar to the stochastic oscillator’s
fast and slow lines.
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When the value of Fisher Transform indicator
is above 0, it indicates an upward movement
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When the value is below 0, it indicates a
downward movement.
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So, the Fisher Transform has a signal line
attached to it.
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This is a moving average of the Fisher Transform
value, so it moves slightly slower than the
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Fisher Transform line.
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When the Fisher Transform crosses the trigger
line it is used by some traders as an entry
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signal.
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For example, when the Fisher Transform drops
below the signal line after hitting an extreme
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high, this could be used as a signal to short
the market.
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As with the previous indicators, the Fisher
will provide many trade signals and many of
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these will not be profitable signals if you
take your entries in areas with no particular
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interest.
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I will say it once again, use the indicator
in conjunction with trend analysis.
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For example, when the price is rising overall
or the market is at a major support level,
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use the Fisher Transform for buy entries.
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During a downtrend or when the market is at
a key resistance level, use it for short-sell
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signals.
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Another entry signal offered by Fisher Transform
is related to divergences.
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Whenever there is a divergence between Fisher
Transform and price, it usually indicates
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that the prevailing price movement would reverse.
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A buy entry signal occurs when you spot a
bullish divergence at a support level.
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It happens when the price forms a lower low
and the corresponding Fisher Transform value
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indicates a higher low.
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A sell signal occurs when you spot a bearish
divergence at a resistance level.
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Meaning when the price forms a higher high
and the corresponding Fisher Transform value
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is a lower high.
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As always, if you learned something new and
found value, leave us a like to show your
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Until next time.
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