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In technical analysis and active trading, the majority of oscillator systems follow almost the same logic. Buy when the oscillator moves above a certain threshold and sell when it moves below a certain threshold. The problem with this approach is that it doesn't take the evolution and the volatility of the market or the stock you are trading into account.
Sometimes traders specify different thresholds depending on whether the market is bullish or bearish but this isn't enough. Thresholds shouldn't be fixed; they must change depending on how the market evolves.
Dynamic zones technical indicator tries to provide a solution to this problem by creating a buy and a sell limit that change depending on the standard deviation (volatility) of the relative strength index, RSI, indicator.
The buy line is created by multiplying the standard deviation of the RSI over a certain period by a positive value.
The sell line is created by multiplying the standard deviation of the RIS over a certain period by a negative value.
These dynamic lines form boundaries and are used to trigger buy and sell signals. So, instead of buying a stock if its RSI value is lower than 30, the Dynamic zones indicator will tell us to buy that stock when its RSI value crosses below the buy line. This is just an example on how to use the Dynamic zones indicator.
Here are the parameters that must be used by the Dynamic zones technical indicator (DynamicZones):
RSI Period: The lookback period used to calculate the Relative Strength Indicator
Buy or Sell Period: The period used to calculate the standard deviation (Volatility) of the lower zone / buy line or the upper zone / sell line.
Buy or Sell zone: A value of one instructs the trading software to return the buy boundary, otherwise the sell boundary is returned.
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.
