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Dave's New System or DNS is an indicator, developed by David R. Evans, which consists of the sum of eight trading rules. Each time a trading rule passes, the indicator value increases by one. The DNS indicator value varies between zero and eight, a value of zero means that no trading rules were TRUE, while a DNS value of eight means that all the trading rules were TRUE.
The Dave's indicator is bullish when its value increases and reaches a high threshold (Example: eight, which is the maximum). It is bearish when its value decreases and reaches a low threshold (Example: 3).
Trading Rules:
The first one compares the Parabolic SAR value with the close price
The second one compares the 5-bar exponential moving average of the close price with the 13-bar exponential moving average of the same close price
The third rule is the same as the second one but with different lookback periods. In this rule, periods of 13-bar and 40-bar are used.
The forth trading rule compares the difference between two exponential moving averages (EMA) with the EMA of another two EMAs difference.
The fifth trading rule uses the simple moving average of the close price
The sixth rule returns one if either the moving average of the 12-bar rate-of-return of the close price is higher than -6% or the 12-bar rate of return of the close price is positive
The seventh rule compares the raw On Balance Volume indicator value with its simple moving average
The eighth and final rule returns one if the volume is higher than its 120-bar simple moving average.
To plot the raw value of the DNS indicator:
Plot(dns,"DNS",colorBlack,chartLine,styleOwnScale);
To plot the 5-bar simple moving average of the DNS indicator:
Plot(sma(dns, 5),"MA DNS",colorRed,chartLine,styleOwnScale);
Trading financial instruments, including foreign exchange on margin, carries a high level of risk and is not suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to invest in financial instruments or foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with trading and seek advice from an independent financial advisor if you have any doubts.
