Chapter 1: Introduction to Technical Indicators

Technical indicators serve as essential tools that guide traders by analyzing past price movements. This article introduces a novel strategy that generates bullish signals through straightforward calculations, enhanced by moving averages.

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Chapter 2: Understanding K's Cyclical Indicator

K's Cyclical Indicator is primarily designed to identify bullish signals. It relies on basic comparisons of Open, High, Low, and Close (OHLC) values. This hybrid indicator functions effectively in both bullish and sideways markets, but it should not be employed during bearish trends.

To construct K's cyclical indicator, adhere to these steps:

1. Assign a value of 1 when the current close price exceeds the current open price.
2. Assign a value of 1 when the current high price is greater than the previous high price.
3. Assign a value of 1 when the current high price surpasses the close price from two periods prior.
4. Sum the results over a 13-period lookback and divide by 13 to derive the percentage of 1s relative to the total (1s and 0s).
5. Multiply the results from the previous step to obtain a weighted percentage reading.

Consequently, the indicator is constrained between 0 and 1. A bullish signal is triggered when the cyclical indicator rises above 0.05 after previously being below this threshold.

For executing the indicator's function, basic functions are required with an OHLC array (not a DataFrame). Below is a graphical representation of the indicator with its default lookback period of 13.

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Chapter 3: Implementing the Strategy

The strategy combines K's cyclical indicator with a 100-period moving average to filter signals, selecting those with the highest probability of success. The trading criteria are as follows:

• A long signal is produced when the indicator exceeds 0.05 while the market remains above its 100-period moving average.

Check out the signal chart below for a visual representation:

Focus on grasping the underlying concepts rather than solely the code. Understanding the techniques and strategies is paramount; the coding aspect is merely a means of execution.

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Chapter 4: Conclusion

In summary, my goal is to contribute to the realm of objective technical analysis by promoting transparent techniques and strategies that undergo back-testing prior to implementation. This effort aims to enhance the credibility of technical analysis and dispel the notion that it is subjective and scientifically unfounded.

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I encourage you to follow these steps whenever you encounter a trading technique or strategy:

1. Maintain a critical mindset and eliminate emotional biases.
2. Back-test using real-life simulations and conditions.
3. If potential is identified, optimize and conduct forward tests.
4. Always account for transaction costs and slippage in your tests.
5. Incorporate risk management and position sizing into your evaluations.

Ultimately, even after ensuring the above steps, exercise caution and continuously monitor the strategy, as market dynamics can shift and render a previously successful strategy unprofitable.

Chapter 5: Recommended Videos

To deepen your understanding of trading strategies, check out the following videos:

The first video, "Creating a Winning Trading Strategy with Technical Indicators: Tips and Tricks," provides valuable insights on effective trading methods.

The second video, "Best Indicator COMBINATIONS For Winning Trading Systems," explores various successful indicator combinations.