Swing Trading Bitcoin With The Aroon and ADX
The market has continued its ranging period and is now closing in on the support level around $8,500-$9,000. Although the market has been ranging over the past two months, you can still make a profit by trading with the Aroon and ADX!
Let’s start by taking a closer look at the Aroon indicator!
Aroon
Aroon is considered to be both a momentum and a trend-following indicator. Aroon is represented by two lines, Aroon up (the orange line) and Aroon down (the blue line), and fluctuates between 0% and 100%.
Aroon measures the frequency of new highs during uptrends. If the price is continuously rising and making new highs, Aroon up will be 100 and Aroon down 0 and vice versa. However, when the price is not making new highs, it means that the uptrend is fading out, and we can have a correction or trend reversal.
The indicator generates buy and sell signals through crossovers. When “Aroon up” crosses “Aroon down” upwards, it means that a positive trend has initiated, and it signals a buy (marked with a green circle on our graph). On the other hand, when “Aroon down” crosses “Aroon up” upwards, it will send a sell signal. We have only used the buy signals from the indicator in this example.
The downside of the Aroon is that it may give out signals during a range that may not be as profitable as during a trend. Therefore we have added the ADX to act as a filter!
ADX
The ADX or average directional index is a volatility indicator that measures the strength of the trend. The higher the value of the ADX, the stronger the trend. We are going to filter out signals given when there is no clear direction in the market. Therefore, all signals provided by the Aroon must coincide with the ADX having a value greater than 25.
To filter out signals even further, you may also want to add a MESA or Parabolic SAR on the daily chart to make sure you are only trading when the broader trend is in your favor.
To exit positions opened by this strategy, we have used the following settings:
Trailing stop loss percentage 2%, arming trailing stop loss 4%
Stop-loss 3%
You can add these settings to your hopper by going into the config/baseconfig/sell settings.
The market has continued its ranging period and is now closing in on the support level around $8,500-$9,000. Although the market has been ranging over the past two months, you can still make a profit by trading with the Aroon and ADX!
Let’s start by taking a closer look at the Aroon indicator!
Aroon
Aroon is considered to be both a momentum and a trend-following indicator. Aroon is represented by two lines, Aroon up (the orange line) and Aroon down (the blue line), and fluctuates between 0% and 100%.
Aroon measures the frequency of new highs during uptrends. If the price is continuously rising and making new highs, Aroon up will be 100 and Aroon down 0 and vice versa. However, when the price is not making new highs, it means that the uptrend is fading out, and we can have a correction or trend reversal.
The indicator generates buy and sell signals through crossovers. When “Aroon up” crosses “Aroon down” upwards, it means that a positive trend has initiated, and it signals a buy (marked with a green circle on our graph). On the other hand, when “Aroon down” crosses “Aroon up” upwards, it will send a sell signal. We have only used the buy signals from the indicator in this example.
The downside of the Aroon is that it may give out signals during a range that may not be as profitable as during a trend. Therefore we have added the ADX to act as a filter!
ADX
The ADX or average directional index is a volatility indicator that measures the strength of the trend. The higher the value of the ADX, the stronger the trend. We are going to filter out signals given when there is no clear direction in the market. Therefore, all signals provided by the Aroon must coincide with the ADX having a value greater than 25.
To filter out signals even further, you may also want to add a MESA or Parabolic SAR on the daily chart to make sure you are only trading when the broader trend is in your favor.
To exit positions opened by this strategy, we have used the following settings:
Trailing stop loss percentage 2%, arming trailing stop loss 4%
Stop-loss 3%
You can add these settings to your hopper by going into the config/baseconfig/sell settings.