Indicator Insights¶

Lessons learned from extensive testing and tweaking of my indicator, the Normalized Relative Strength Indicator (NRSI).

From the experience of trying to tweak the normalized relative strength indicator and normalized relative strength momentum indicator I realized following:

1. Stock & Timeframe Specificity¶

Certain entry and exit rules work better for certain stocks and for certain time frames. For example: TSLA on 5 min time frame. Although profit factor is low, due to sheer number of trades, total profit percentage could be high.

2. 4-Hour Charts Include Premarket¶

4 hr charts include premarket, so they are slightly better than day chart for testing strategies.

3. YouTube Premium Indicators¶

I looked into YouTube for premium indicators: and there could be some indicator which has 60-80% win rate and more than 2 profit factor. But question is: - Will it work in the long term for every stock? - For every timeline? - Will you really put your money into this algo and spend years around it?

4. The Chop Problem¶

5. Lagging Indicator Warning¶

I was reading on Reddit when someone asked if using 7 and 200 SMA on a smaller time frame will be a good automated strategy with good win rate etc, and people commented these are lagging indicators and you will always fall into trouble at chop zones.

6. Things Circle Back to Matt¶

Things always circle back to Matt and how good he is.

Heiken Ashi (HA) Candles¶

The Discovery¶

HA Timeframe Guidelines¶

• People say to use HA candles only on time frames higher than 1 hour
• It's not recommended to use on lower time frames
• The HA candles on daily chart and my latest strategy are giving mind blowing results

HA for Entry vs Exit¶

Real Example: TSLA Dec 05 2024¶

The perfect example of this is look at my TSLA Dec 05 2024 trade: - I panicked and exited on a doji within 3 days on regular candles - But HA candles showed bullish for few more days (no lower shadows) - I could have exited much later - I would have made a killing with that trade but I didn't

HA on YouTube¶

https://youtu.be/Ci1hKIHL9VY?si=V9lyiLfYF7MUPtv6

HA for Swing Trading¶

I've used Heiken Ashi and smoothed Heiken Ashi overlay for swing trading TQQQ and QLD on daily candles.

HA and Extended Hours Warning¶

HA Doji for Exit¶

Check HA candles: If they show doji on previous day then it's dangerous. Use HA candles also as a confluence indicator.

Stock-Specific Tuning¶

TSLA¶

TSLA does very well with 15 min chart and regular candles with SPY.

Volatile Stocks (VST, AEHR)¶

For certain tickers which are volatile like VST, tuning parameters help: - Super long term look back: 100 - Long term lookback: 40 - Medium term look back: 10 - Short term: 3

AEHR systems looks very volatile. So what worked is shorter modified settings like above (short term horizons and a 20h candle - basically smoothing things out similar to HA candles).

General Optimization Process¶

First try to get best % return on regular candles and then move to HA for extra boost.

Try different: - Trend filter types - Stop loss types
- Anchor indexes like NVDA instead of SPY or even QQQ

TradingView Limitations¶

Using Strategy as Indicator¶

I can also use my strategy on regular candles but just as an indicator for entry and exit. I currently also included the PVT indicator into the entry that is only when it is green entry happens.

I guess I can: - Look into this on the daily chart - Look into overall support and resistance levels - Look into commentary by Matt, etc then decide the entry - I could also parallelly look the same on HA candle chart

I need to use "judgement", "understand market conditions", and trade management i.e. ruthlessly cut stop losses.

NRSI Specific Insights¶

Strong Momentum Check¶

Nasty Red Candle Detection¶

Looking at my price action indicator (1-2-3-4-5 Spectre style): see if a nasty red candle on a stock (i.e. 3 or 4 number) has brought down NRSI down to zero or sometimes from 1.0 to 0.5 or below.

Also check SPY on that day. If that nasty RED candle came on a SPY up or sideways day then it's time to exit the stock. (See RKLB 02/01/2024)

X Mark System¶

I have put X mark on my script for which candle: both 20 and 9 NRSI are above 0.95. This perhaps in conjunction with other signals, S&R levels could be used to increase prob of entry (or exit?).

Another confluence is to use PVT and BBT (black line above zero for eg) to see if volume agrees with PVT or bull or bear control agrees with the X mark. This will make sure that the following days could also be X days and start of a DTL break or pivot break.

Even this X mark on a candle without much volume on that day is not a high prob continuation sign. But would be interesting to see the 5 min chart next day.

X Mark Meaning¶

An X mark on a stock on a given day basically means it had RS on that day. Next day it may not have. This will be like a sudden spike and dip on NRSI plots. But if next day breaks the current day candle close or wick then could be an interesting follow-through trade on next day.

Multi-Timeframe X Marks¶

Like Dave does with multi time frame momentum, what I can do is put another colored X mark or some other mark on a stick if it's showing more than 0.95 NRSI on 9,20 lookback on weekly chart. This will give more confluence for an X mark on daily chart candle.

It's all about time frames and confluences.

For 5 Min Chart¶

See on daily chart if previous day was X. This will add to prob, but doesn't guarantee anything.

X for Entry, Doji for Exit¶

I can use X on daily chart for entry and doji on daily chart with HA for exit. I can do the same for 5 min chart.

3^rd NRSI as Position Indicator¶

Also the 3^rd NRSI (50 lookback and 20 signal line) is a very good indicator in itself for entry and exit. Combine that also with my other analysis. This is a good position trade style indicator.