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Mayo 24, 2022

How to use xSignals and profit factor, heatmaps in trading.

How to use xSignals and profit factor, heatmaps in trading.

Open a trade or stay out of the market? There is a strong trend, but maybe it ends and it’s better not to put a big Take Profit? Such decisions are made by the trader at each trading session. It seems that the more indicators on the chart, the better. Each tool adds information, but if there is a lot of it visually, there will be errors. Use the visual tools of the xSignals service – losses will be less, and profits will be more.

Include additional tools in xSignals.

How automatic orders work in xSignals see the video, here we'll start with the "Power Signal" parameter.

The purpose of the article is to show step by step the process of analyzing signal information for making a trading decision. All information and examples can also be used when trading cryptocurrencies!

1. Power signal

The first action before opening a new position will be to determine the current market trend: upward for BUY orders, downward for SELL, there is no trend (flat) when you can open both BUY and SELL if the width of the side channel allows

When the type of trend is determined, it is necessary to determine its dynamics or "strength": the maximum at the beginning after the reversal, the average in the middle of the movement with a gradual decline towards the end of the trend, when large players begin to take profits. 

The Power histogram based on trend indicators and overbought/oversold oscillators allow you to quickly determine the state of a trend.

On the image are examples of a consistent “fall” in the value of Power signals. Pay attention to the "week" SELL signal: such Power values often indicate the presence of a flat - this is confirmed by a trend indicator and an oscillator. Beginners are recommended to skip such signals (settings in the "Filter" section), experienced traders can put such a signal "under control" by opening trades manually after confirming the breakdown. Or set pending orders outside the range.

2. Heatmaps

Is the current price suitable for opening a deal or do you need to wait for better conditions? To answer, a trader analyzes chart patterns and data from technical indicators. For example, the opening signal may be a crossover of the Moving Average or the price move above/below MA.

To confirm, you need to use several instruments that are simultaneously on the chart. You need to analyze a lot of information, often the opposite. For quick and easy analysis, use Heatmaps from xSignals.

Heatmaps show the result of the "Power + Indicators" combination on historical data. The more trades closed in profit, the "greener" the marker. In addition to the trending Power, the trader sees:

  • iPP. Breakdown/rebound from strong intraday support/resistance levels.

  • iSummary. Comprehensive forecast of the xSignal platform for a new deal in the direction of the trend

  • iWRP. The presence of overbought (to continue to BUY or open a reversal SELL) and oversold (continuation of SELL, reversal BUT);

  • iMomentum. Rate of price change. Increases with the development of a trend decrease at the end.

  • iBulls, iBears. They show the current "strength" of buyers and sellers, respectively.

Read more about the indicators in the blog.

For analysis, statistics are used only in the direction of the signal trend.

Trading Examples

Let's start with a strong downtrend in the Canadian dollar (USDCAD), a signal for the RSI reversal strategy. Green iBears indicates a balance of power in favor of buyers, iWRP also confirms the trend in green. Let's see how it will be on the chart. RSI with its overbought/oversold zones will be an additional signal filter.

No additional comments are required. The movement of the price and indicators fully confirms the information of xSugnals. The trend makes it possible to open several consecutive SELL or one deal with a large Take Profit. Or connect a Trailing Stop to automatically follow the market and close a position at the first signs of a reversal.

The next «middle» uptrend is for the Australian dollar (AUDUSD) and the trendy Parabolic SAR (PSAR). iBULL shows the dominance of buyers, iMomentum shows good momentum. Let's look at the chart.

As in the first example, the signal is visually confirmed. Important: iMomentum does not show the trend direction, only its dynamics. The more "active" it is, the longer the indicator stays above the zero level (see example) both for up and downtrend. "Sticking" below zero indicates the end of the trend, the beginning of consolidation before the reversal. 

We continue to "reduce" the Power signal, two more examples of trading on Heatmaps.

xSignals shows the "small" trend in GBPJRY. The colors of iBears and iBull confirm the small predominance of buyers. Let's look at the chart.

There is a short flat with retests of the S2 support level of Pivot Points; this is confirmed by the data on the Summary. After the retest, the price returns above the level, and buyers try to change the balance of power and start an uptrend. This is the reason for the Neutral signal on Summary and the low Power on xSignals. The market is only determined by a new movement, we are waiting.

Result: After the third retest, the uptrend starts, and you can open BUY. It is important to make sure that the jump is “true”, it is recommended to open the next 2-3 candles above the level.

The second example USDJPY is that there is no trend on Power, but almost the entire Heatmaps histogram is green. This means a positive result of the current data of the indicators on the past statistics. We look at the chart again, and we see a side channel, the width is sufficient for trading from the borders.

Trend indicators and tempo/dynamics oscillators do not work well on channels. Past data also do not provide correct information; statistics do not see where profit was: on-trend or channel. When there is a combination of "Slow/Weak Power" + "Strong Heatmaps", we do not miss the signal, we look at the graph.

Result: Bollinger Bands confirms the channel and BUY signal on the rebound from the lower border. You can open a trade by Take Profit 3-5 points above the upper Bollinger.

3. Profit Factor

If the calculation of Heatmaps takes into account only the number of profitable trades to unprofitable, the Profit Factor determines the overall profitability of the strategy by the number of profitable and unprofitable points of closed trades.

Signal reliability is now determined by three factors:

Power (trend phase) + Heatmaps (how indicators work) + Profit Factor (strategy profitability)

4. Take Profit / Stop Loss

The last solution before opening a new position will be the calculation of the levels of automatic closing of profit/loss – Take Profit/Stop Loss. To do this, xSignal takes the current volatility of the asset according to the ATR (Average True Range) indicator with basic settings of 14 periods as a basis for calculations.

It is important to understand that ATR does not determine the trend direction, only volatility. There are periods when it moves for a long time near the upper/lower values, or, according to professional traders, “volatile overbought/oversold” occurs. You need to be careful: there will not always be a reversal behind this; it can just be a local correction or rollback.

Trading Examples 

On the signal panel, everything is simple: the upper values will be the approximate size of Take Profit, and the lower ones will be Stop Loss. We are the first to open BUY and SELL positions with the maximum Profit Factor for each signal.

USDCAD. A strong downtrend is below the local minimum; the movement may end or slow down in the next 5-10 candles. A large Take Profit is not needed; a combination of 3/6 with a maximum PF will be the best solution.

Result: further market movement confirms the TP/SL calculation. The price closed the profit at the end of the trend, the flat began and you can switch to channel strategies.

Result: further market movement confirms the TP/SL calculation. The price closed the profit at the end of the trend, the flat began and you can switch to channel strategies.

AUDUSD. At the time of opening, the market does not give a clear visual forecast; there are only weak signs of a new uptrend. We look xSignals: strong Power, green iPP and iBulls, neutral iSummary.

This means that the Pivot Point level has been broken (or the price makes retests), and the balance of power has changed in favor of buyers. Open BUY at the maximum PF.

Result: the position was opened at the beginning of the trend, and the Power signal is correct. We close the maximum profit at the end of the movement.

Let's move on to situations where the calculated TP/SL parameters do not suit the current market. Remember to calculate the level values ​​only according to historical data, there will always be a delay. You may need to manually adjust the levels, see examples:

On the Swiss franc (USD CHF), an order is opened for the highest Profit Factor, a good Power signal and most of the Heatmaps are green confirming the signal. We look at the graph.

The calculated Take Profit is above the resistance level at three consecutive local price highs, there is a downtrend. Even if the market reverses, there may be another retest with a reversal without closing the profit on the trade. In other words, we have a "long" Take Profit – it would be correct to move the level to the level of past highs.

Further market movement confirms the correctness of the choice: the price made another maximum, closed the deal in profit and started a new downtrend.

On the Japanese yen (USDJPY) there is another difficult option: the maximum Profit Factor is equal to one. Or the probability of a profitable trade will be 50%/50%. What should I do – enter the market or skip the signal?  To make the right choice, let's take a simple strategy on the Donchian Channel indicator to search for reversal points and the Awesome Oscillator to confirm the trend. 

A reversal from the upper border of the channel with a breakdown of the centerline is visible. Volatility is decreasing, but AO confirms the probability of a continuation of the downtrend to the lower limit of Donchian. You can open a new SELL with PF=1.

According to the rules of classical money management, TP/SL levels should be placed 3-5 points above/below the channel borders (the current price movement width allows trading the boundaries). Estimated Stop Loss near the upper limit - do not change. By Take Profit two variants:

  1. Leave the calculated value. The level is within acceptable limits under the lower boundary of the channel.

  1. Move as shown in the image. Why? Answer: volatility “squeezes” the channel, and the current Donchian bottom line can become a new strong resistance, from which the price will start a reversal and not close Take Profit. It is better to move the level above the line so there will be a greater chance of automatic profit.

In other words, the process of choosing the option of automatic installation of Take Profit / Stop Loss will be as follows: with several Profit Factor > 1, choose the combination that best suits the current volatility and money management. If the market is moving with strong impulses and trends, take "long" Take 6/3 and 8/5. We trade 4/3 and 5/8 on medium volatility.

On the side channels, speculative market and strict money management, only "close" TP 4/3 and 5/8.

Summarize.

xSignals gives the trader additional information to make decisions on his strategy, money management system, and trading style. No need to install additional trend dynamics indicators, and build strong price levels (Pivot Point from Heatmaps is enough). Track how the signals worked in the past - this is in the Profit Factor, manually set the Take Profit / Stop Loss levels.

There is time for additional analysis of candlestick patterns and profit options for news strategies.