Mendy's Impulse System
This is an adaptation of Elder's Impulse System.
In Elder's Impulse System, he makes use of a MACD and an Exponential Moving Average (EMA) as censors in his buy or sell decisions. If both the direction of the MACD-Histogram and the EMA's slopes are upward, the censor gives him the permission to buy. If both of their directions are downward, the censor gives a permission to sell. If one is sloping upward and the other downward, the censor gives a blue signal, and depending on context, either a buy or sell signal, or better yet a hold signal.
First, this new indicator takes the idea a step further by using the Arnaud Legoux Moving Average (ALMA) in lieu of an Exponential Moving Average in the computation of the MACD line. The ALMA was designed to be more responsive to changes in price, so the idea here is that the responsiveness will give more reliable buy or sell signals vs. the usual MACD.
Next, in Elder's original Impulse System, he makes use of the direction of the EMA (usually 13-period) to complement the MACD indicator he's using. In the new indicator, instead of using one EMA, two EMAs are used, one fast and another slow. The slow and fast EMAs are usually used to indicate the trend of the security being traded: a fast EMA above the slow EMA indicates an uptrend, while the reverse shows a downtrend. That being said, what replaces the function of Elder's EMA is not the fast and slow EMA, but the difference between the two: A positive value indicates an uptrend, while a negative value indicates a downtrend.
Third, the color signals generated by this new indicator does not make use of the value of ALMACD-Histogram and the EMA Difference. Rather, it uses the Rate of Change of both the value of the ALMACD-H and the EMA Difference compared to their previous day values. This decision stems from my issues with charting, because when you look at a chart spanning a large period of time, some periods have big price swings that causes the indicators of that period to have big values. Those big values then causes the chart to auto-adjust values, which makes the rest of the values within the indicator shrink. You can be fooled into thinking that a positive MACD-H signal has no momentum because it looks little compared to the huge histogram a few periods before that.
Therefore, my solution to that is to track the change of these values instead. By tracking the Rate of Change of these values, you can see if the indicator is losing momentum. When the Rate of Change shows a negative value, it means that the indicator is sloping downward, and if it shows a positive value, then it means the indicator is sloping upward. In this context, this indicator can be considered an oscillator as well. A positive consequence of this is that when the value of the Rate of Change crosses the zero line, it indicates the earliest point in which you can enter a buy/sell position. Following Elder's idea of indicator seasons, crossing the zero line indicates either the start of Spring or the start of Autumn.
All in all, this new indicator generates three colors, similar to Elder's Impulse System: Red, Blue, Green. The indicator will return a Red color when both the ALMACD-Histogram and EMA Difference's Rate of Change is negative. The indicator will return a Blue color if one of them is sloping downward and the other upward. The indicator will return a Green color if both the ALMACD-H and EMA DIfference's Rate of Change is positive.
Finally, this indicator will overlay the color signals over the bars/candles, as well as show you the ALMACD-Histogram and EMA Difference.
I hope you find this indicator useful. Happy trading.
Special thanks to Samuel16 for his code on Elder's Impulse System, and Sclark39 for his code on Arnaud Legoux MACD.
In Elder's Impulse System, he makes use of a MACD and an Exponential Moving Average (EMA) as censors in his buy or sell decisions. If both the direction of the MACD-Histogram and the EMA's slopes are upward, the censor gives him the permission to buy. If both of their directions are downward, the censor gives a permission to sell. If one is sloping upward and the other downward, the censor gives a blue signal, and depending on context, either a buy or sell signal, or better yet a hold signal.
First, this new indicator takes the idea a step further by using the Arnaud Legoux Moving Average (ALMA) in lieu of an Exponential Moving Average in the computation of the MACD line. The ALMA was designed to be more responsive to changes in price, so the idea here is that the responsiveness will give more reliable buy or sell signals vs. the usual MACD.
Next, in Elder's original Impulse System, he makes use of the direction of the EMA (usually 13-period) to complement the MACD indicator he's using. In the new indicator, instead of using one EMA, two EMAs are used, one fast and another slow. The slow and fast EMAs are usually used to indicate the trend of the security being traded: a fast EMA above the slow EMA indicates an uptrend, while the reverse shows a downtrend. That being said, what replaces the function of Elder's EMA is not the fast and slow EMA, but the difference between the two: A positive value indicates an uptrend, while a negative value indicates a downtrend.
Third, the color signals generated by this new indicator does not make use of the value of ALMACD-Histogram and the EMA Difference. Rather, it uses the Rate of Change of both the value of the ALMACD-H and the EMA Difference compared to their previous day values. This decision stems from my issues with charting, because when you look at a chart spanning a large period of time, some periods have big price swings that causes the indicators of that period to have big values. Those big values then causes the chart to auto-adjust values, which makes the rest of the values within the indicator shrink. You can be fooled into thinking that a positive MACD-H signal has no momentum because it looks little compared to the huge histogram a few periods before that.
Therefore, my solution to that is to track the change of these values instead. By tracking the Rate of Change of these values, you can see if the indicator is losing momentum. When the Rate of Change shows a negative value, it means that the indicator is sloping downward, and if it shows a positive value, then it means the indicator is sloping upward. In this context, this indicator can be considered an oscillator as well. A positive consequence of this is that when the value of the Rate of Change crosses the zero line, it indicates the earliest point in which you can enter a buy/sell position. Following Elder's idea of indicator seasons, crossing the zero line indicates either the start of Spring or the start of Autumn.
All in all, this new indicator generates three colors, similar to Elder's Impulse System: Red, Blue, Green. The indicator will return a Red color when both the ALMACD-Histogram and EMA Difference's Rate of Change is negative. The indicator will return a Blue color if one of them is sloping downward and the other upward. The indicator will return a Green color if both the ALMACD-H and EMA DIfference's Rate of Change is positive.
Finally, this indicator will overlay the color signals over the bars/candles, as well as show you the ALMACD-Histogram and EMA Difference.
I hope you find this indicator useful. Happy trading.
Special thanks to Samuel16 for his code on Elder's Impulse System, and Sclark39 for his code on Arnaud Legoux MACD.