Just like visual interpretation is better with two eyes than one, the Triple Trend Oscillator provides a three dimensional view for better understanding of trends.
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| Trend dynamics in Triple Trend Oscillator. |
Like many other technical indicators, TTO oscillates around a zero line but with a difference. It incorporates trend oscillators which mimic the trend momentum across three timeframes, plotting them simultaneously, thus giving an overall view of the trend position. Thus it provides a better indication of trend strength which is not possible when trends are viewed in isolation.
The main components of TTO are the three trend oscillators, which plot the three trends : Major, Intermediate and Minor trend. As indicated by TTO, a stock would be extreme bullish when all the three trend lines are above zero and extreme bearish when they are below zero. Between the extreme bullish/bearish phases, TTO exhibits varying degree of trend quality depending on the position of the three trend oscillators. Each sub-trend oscillates around its main trend, denoting the period of uptrend/downtrend in the main trend. Thus if the sub-trend rises above the main trend and remain there for an extended period, it has the effect of pulling up the main trend upward and vice-versa .
Within the major and intermediate trends, TTO shows trend swings which are indicated by the trigger line, which acts as a leading indicator. Trading position can be taken in the direction of the larger trend based on the zero crossover of the trigger line. When trigger line crosses zero from bottom, a buy signal is generated and vice versa. An increasing value of the trigger line would depict increasing momentum and topping or reversal when it starts approaching zero line. One should be prepared to exit his position on zero crossover. Also, divergences between price and trigger line may indicate a reversal of trend.
Unlike other oscillators, TTO does not have an overbought or oversold zone as these zones tend to over-extend and may remain in overbought or oversold territory for a long period till the trend is reversed. TTO relies on the trend reversal which is indicated by crossover of the shorter term trend lines. What it means is if the shorter term trend line crosses the longer term trend, a reversal is indicated. In the absence of such a crossover, the trend is assumed to continue. This logic applies to all the three time frames included in the TTO. If a lower degree trend line falls below or moves above a higher degree trend line, either the trend is weakening and reversal is impending.
15 minute chart of CNX Nifty
Daily chart of CNX Nifty
What TTO effectively does is, it plots the trend transition, as it flows from a lower timeframe to a higher timeframe i.e. 5 min-15min-hourly-daily-weekly-monthly. At any time three time frames can be plotted simultaneously, depending on its use for- day trading, positional trade, short term trade or investment. A look at the table will explain this :
TTO uses exponential, double exponential and triple exponential moving averages of the momentum in each trend cycle to eliminate the leg effect. This makes the three trend cycles more responsive to price change which when viewed together gives a much clearer trend position and early indication of trend reversal.
As momentum precedes the price, TTO acts as a leading indicator because it calculates the difference between exponentially smoothed momentum in different timeframes and plotting the same as a single indicator. In a single window it shows the major trend along with its intermediate, minor and sub-minor trend.
Advantages of TTO
1. Early spotting of trend- a leading indicator.
2. Keeps you on the right side of trend, helps you ride on the trend.
3. Filters market noise associated with short term to its advantages by using it as entry and exit signals.
4. Stoploss may be used but not necessary.
5. Backtested and optimized parameters.
6. Higher percentage of successful trades.
7. Indicates trend strength and quality.
8. Can be used intraday, short term, positional and long term trading in indices, stocks and commodities.
9. Acts as a complete navigation system for the technical trader/ investor.
Interpretation
CNX NIFTY
On the CNX Nifty hourly chart the following three trends plotted :
Red and Green thick lines – Daily trend
Pink and Dark Green thick lines – Hourly trend
Pink and Blue parallel lines – 15 minute trend
Along with the above the indicator also shows the black dotted lines (trigger line) which mimics the minor trend and its crossover is used as entry and exit signal. Notice how the daily trend carries with it the various sub trends which can be used to make precise entries/exits. The hourly trends tries to keep itself above the daily trend, showing continuous trend strength. The 15 minute trend whipsaws around the hourly trend giving an early indication of trend change. The trigger line (smoothed) shows the relative strength/ weakness of the 15 minute trend.
The indicator also shows divergences across the various trend cycles which indicates that a change in the trend direction is just around the corner. So apart from the daily and hourly trend, one can see the developments happening in the 15 minute and even 5 minute time frame which is crucial for a trader and result in better risk management.
On the daily chart of CNX Nifty below, which shows the weekly, daily and hourly trends, one can spot the trend change taking place on the pink and blue twin parallel line, much before the daily signal comes on, virtually giving the best entry signal one can have for the trade. This is possible because the lower timeframe trend is being monitored and used for entry/exit on zero crossover.
The chart gives information about not only weekly and daily trends, but also hourly and 15 minute trends, which can be used to make an informed trading decision, without waiting for the daily signals, which could be significantly delayed due to the leg effect. This can increase the profitability of the trading position considerably.
Some Other Charts
TTO uses exponential, double exponential and triple exponential moving averages of the momentum in each trend cycle to eliminate the leg effect. This makes the three trend cycles more responsive to price change which when viewed together gives a much clearer trend position and early indication of trend reversal.
As momentum precedes the price, TTO acts as a leading indicator because it calculates the difference between exponentially smoothed momentum in different timeframes and plotting the same as a single indicator. In a single window it shows the major trend along with its intermediate, minor and sub-minor trend.
Advantages of TTO
1. Early spotting of trend- a leading indicator.
2. Keeps you on the right side of trend, helps you ride on the trend.
3. Filters market noise associated with short term to its advantages by using it as entry and exit signals.
4. Stoploss may be used but not necessary.
5. Backtested and optimized parameters.
6. Higher percentage of successful trades.
7. Indicates trend strength and quality.
8. Can be used intraday, short term, positional and long term trading in indices, stocks and commodities.
9. Acts as a complete navigation system for the technical trader/ investor.
Interpretation
CNX NIFTY
On the CNX Nifty hourly chart the following three trends plotted :
Red and Green thick lines – Daily trend
Pink and Dark Green thick lines – Hourly trend
Pink and Blue parallel lines – 15 minute trend
Along with the above the indicator also shows the black dotted lines (trigger line) which mimics the minor trend and its crossover is used as entry and exit signal. Notice how the daily trend carries with it the various sub trends which can be used to make precise entries/exits. The hourly trends tries to keep itself above the daily trend, showing continuous trend strength. The 15 minute trend whipsaws around the hourly trend giving an early indication of trend change. The trigger line (smoothed) shows the relative strength/ weakness of the 15 minute trend.
The indicator also shows divergences across the various trend cycles which indicates that a change in the trend direction is just around the corner. So apart from the daily and hourly trend, one can see the developments happening in the 15 minute and even 5 minute time frame which is crucial for a trader and result in better risk management.
On the daily chart of CNX Nifty below, which shows the weekly, daily and hourly trends, one can spot the trend change taking place on the pink and blue twin parallel line, much before the daily signal comes on, virtually giving the best entry signal one can have for the trade. This is possible because the lower timeframe trend is being monitored and used for entry/exit on zero crossover.
The chart gives information about not only weekly and daily trends, but also hourly and 15 minute trends, which can be used to make an informed trading decision, without waiting for the daily signals, which could be significantly delayed due to the leg effect. This can increase the profitability of the trading position considerably.
Some Other Charts
APPLE
In the following hourly chart of APPLE Inc. (APPL-NYSE) subsequent to Apple trading at 500 levels, the 15 min trend starts to rise above the hourly trend and crosses over the zero line. It maintained itself above the hourly trend till about 535-540 levels, where it starts falling below the hourly trend, thereby giving an early signal of the trend weakening. It also started developing divergence and the price broke the trend line and EMA(20). One could safely join this uptrend at several points as indicated by the zero crossover of the trigger line.
DOW JONES
DOW JONES
The following chart of Dow Jones shows sideways movement, as the hourly chart keeping low below the daily trend signifying lack of strength and trend reversal may be in the offing. This kind of pattern could also imply distribution or accumulation of short positions.
INFOSYS
The daily chart of Infosys Ltd. (INFY-NSE) suggested sell as indicated by the trigger line crossover. The buy was indicated at 3580. Once the stock touched 3760, the indicator was showing continuous loss of momentum.
Back Test Results
The following are the back test results for CNX Nifty for 2013 which show reasonably high number of successful trades. The test was performed using Smartrade system running on TTO engine. These test results were achieved during back test and under optimum parameters, but may vary during normal trading. However, it would be safe to assume that TTO shows high reliability as a trend following system.
Medium and Long Term Investing
Medium and long term investing is normally associated with daily, weekly and monthly charts. TTO provides some critical information to position oneself quickly to take advantage of the trend change. Not that this information is not available otherwise, but TTO presents this data in a much easier way which could be quickly analyzed and acted upon.
The following weekly chart of Wockhardt Ltd. (NSE:WOCKPHARMA) shows, apart from the weekly trend, monthly, daily as well as hourly trends. The hourly and daily trend information can be used to take quick long term positions without having to wait for the weekly price signals.
TTO and Other Technical Theories
There are numerous possibilities of using TTO alongside and in conjunction with other well renowned technical theories like Elliott Wave and Fibonnaci Principals which can enrich the trading experience. For example, the blow off rally in wave three can be associated with a synchronized bullish alignment in TTO. A detailed analysis of these can be a part of a separate study.
TTO - A Complete Trading System
TTO is a trend following system which is highly responsive to price change, keeps you on the right side of the trend as well as helps identifying high quality trends. The indicator parameters have been optimized, back tested using historical data and in live market conditions. However, the indicator does not predict any levels or sets any price targets. Since the indicator can provide trading solutions for a trader with precise entries and exits, it can be used as a complete trading system.
The following are the back test results for CNX Nifty for 2013 which show reasonably high number of successful trades. The test was performed using Smartrade system running on TTO engine. These test results were achieved during back test and under optimum parameters, but may vary during normal trading. However, it would be safe to assume that TTO shows high reliability as a trend following system.
Medium and Long Term Investing
Medium and long term investing is normally associated with daily, weekly and monthly charts. TTO provides some critical information to position oneself quickly to take advantage of the trend change. Not that this information is not available otherwise, but TTO presents this data in a much easier way which could be quickly analyzed and acted upon.
The following weekly chart of Wockhardt Ltd. (NSE:WOCKPHARMA) shows, apart from the weekly trend, monthly, daily as well as hourly trends. The hourly and daily trend information can be used to take quick long term positions without having to wait for the weekly price signals.
TTO and Other Technical Theories
There are numerous possibilities of using TTO alongside and in conjunction with other well renowned technical theories like Elliott Wave and Fibonnaci Principals which can enrich the trading experience. For example, the blow off rally in wave three can be associated with a synchronized bullish alignment in TTO. A detailed analysis of these can be a part of a separate study.
TTO - A Complete Trading System
TTO is a trend following system which is highly responsive to price change, keeps you on the right side of the trend as well as helps identifying high quality trends. The indicator parameters have been optimized, back tested using historical data and in live market conditions. However, the indicator does not predict any levels or sets any price targets. Since the indicator can provide trading solutions for a trader with precise entries and exits, it can be used as a complete trading system.
Conclusion
Though the indicator may look complex with its several trend oscillator , but once properly understood can be used advantageously to stay ahead of the market. Equipped with the TTO, a trader would be better placed to negotiate the short term noise and whipsaws. TTO presently supports Amibroker charting software.
TTO can be used in all time frames for equities, indices, commodities and forex for short terms, positional and swing trades as well as for long term investing. It is the culmination of extensive research carried out by me and could be a potential wealth creator for the investors.
“Triple Trend Oscillator” or “TTO” is the term coined and used be me to describe the process of carrying out an integrated trend analysis using multiple timeframes. The following observations are the part of study for the research carried out by me, out of the need to develop an instrument which can aid and enhance technical trading/ investment.
The Triple Trend Oscillator (TTO) is a trend following oscillator devised to identify the exact technical strength of a stock or indices over multiple timeframes and can also be used as a trend and momentum indicator. The sole purpose of this indicator is to keep positions on the right side of trend and at the same time indicate trend quality.
