Directional Day Filter System
For some time traders have been using the freely distributed Directional Day Filter to predict the direction of the market each day. You may download this indicator here.
The indicator has, up until this time, been used exclusively as a visual tool.
By analyzing early market activity, a reasonably accurate prediction of the trend for the remainder of the day can be determined. Traders are encouraged to take trades only in the direction of this major trend.
After many, many requests, the indicator is now available as an automated trading system.
The automated system enters trades only in the direction of the dominant trend of the day as determined by the Directional Day Filter. A reasonable stop based on support and resistance protects the position from a major loss. Profits are accepted at calculated target levels. All positions are exited at the end of the trading day if neither the target price or the protective stop level have been reached.
The system, by entering trades only in the direction of the major trend, produces a significantly high percentage of winning trades. Since the system will not enter a trade on a sideways, or non-trending day, many of the pitfalls of system trading, specifically taking multiple losses on such days, are avoided using this technique. Positions are taken only on days where a high probability of a profitable trade is indicated early in the session. Consequently, the system will often have several days when there are no trades generated.