OBOS Entry Signals.
To add to the MA cross-over entry signal generator above here's one on overbought - oversold signal generators.
There are 3 types of OBOS entry signal generators you might come across, the first one is made by programmers who are not traders and doesn't work. They simply signal sell when price goes OB (and vice versa) but as we know price can remain OB for a long time and is often the best time to stay in.
The second type is better and they signal sell/buy when the K line and D line cross over in OB or OS.
The best one is where a signal is generated when price is exiting OB or OS.
There are many OBOS indicators you can experiment with, let's take a look at Stochastics on a 1 min Dax chart.
As usual we have to play with the settings to match the market and time frame. The default settings for stochastic are K period 14; D period 3; and slowing 3.
The K is very twitchy and gives many false signals so remove the K line and use the D line instead. The D is slower so the added Slowing is not needed so reduce Slowing from 3 to 1. And finally the K periods which is needed for the calcs, we want to adjust to give a reasonable number of signals but not too many and after back testing on this market and time frame I've elected 56. The OBOS levels are default (20,80).
So we have Stochastic 56,3,1.
As with the MA cross-over this will only work in a trend (though Stoch can be adjusted to work in a range), also on the 1 minute chart is the 100 EMA and the 240 Linear Weighted MA, we need these to be in correct order and sloping and not crossed.
Once the up trend is established by the ordered (100 above 240) and upward sloping MAs we have trend and direction so in the up trend we are only looking for Longs.
We want to enter on a dip and the pullback should be strong enough for Stoch to reach the oversold and turn to start a new upward leg, we are using the momentum of a leading indicator to signal a change in price direction from down to up to continue the trend.
As can be seen to the right of the chart the trend weakens and the MAs look to crash into each other so caution should be used at that point.
On the chart we have 7 times when Stoch turned at oversold over the course of the day after the MAs signaled a new up trend earlier in the day, there was 1 fail and 1 where the MAs were confused but Stoch still gave a correct signal so 6 of the 7 correctly anticipated price reversal and trend continuation.