06/04/13

Incredible Charts: Safezone Indicator

Home Site Map About Us Priv acy Policy Adv ertise (pdf) Contact Us Search

Free Download
A~C Accumulation Distribution ADX Aroon Oscillator ATR Bands ATR Trailing Stops Average True Range Bollinger %b Bollinger Bands Candlestick Charts Chaikin Money Flow Chaikin Oscillator Chaikin Volatility Chandelier Exits Commodity Channel Index Compare Prices Coppock Indicator D~L Detrended Price Oscillator Directional Movement Donchian Channels Ease of Movement Elder Ray Index Equivolume Charts Exponential Moving Average Fibonacci Extensions Fibonacci Retracements Force Index Keltner Channels KST Indicator Linear Regression Linear Regression Indicator M ~N MA Oscillator MACD MACD Histogram Mass Index Median Price Momentum Money Flow Index

Subscribe

Education

Trading Diary

Forum

Help
Jaime 140

Indicator Guide > Trailing Stops > Safezone Indicator Indicators A ~ Z > Q ~ U > Safezone Indicator Education > Trailing Stops > Safezone Indicator

Safezone Stops
Traders adjust their stops over time in the direction of the trend in order to lock in profits. As an alternative to Moving Average and Average True Range trailing stop systems, Alexander Elder introduces SafeZone Stops in Come Into My Trading Room (2002). Dr Elder designed SafeZone to eliminate the "noise" component of a trend and hopefully avoid having stops shaken out by that noise. He uses a 22-day Exponential Moving Average to define the trend, but I prefer a longer (63-day) exponential moving average. Elder then calculates directional movement in a similar fashion to Welles Wilder's Directional Movement System and applies a multiple of between 2 and 3 to determine the trailing stop.

Table of Contents Safezone Stops Safezone Trading Signals Example Safezone Setup Safezone Formula Define the Trend Directional Movement Directional Movement Days When the Trend is UP When the Trend is DOWN Safezone Evaluation

Share:

What's New
Incredible Charts Pro 6 w ith Hour/Minute Charts Trading Forex Trend Channels Trading w ith Candlesticks ADX Average Directional Index Stop Loss Orders - Help or Hindrance? Canada, UK and US data (15Min Delayed) ASX and Singapore data (20Min Delayed)

Free Software
Incredible Charts Pro 6

Quick Tour

Install Help

Trading Diary
Read Colin Twiggs free market timing newsletter

Join Our Mailing List

We do not spam.

www.incrediblecharts.com/indicators/safezone.php#safezone_setup

Most Popular Links

1/6

06/04/13
Money Flow Index Moving Average Moving Average Filters Moving Average High/Low /Open Multiple Moving Averages Negative Volume O~P On Balance Volume Parabolic SAR Percentage Trailing Stops Positive Volume Price Comparison Price Differential Price Envelope Price Ratio Price Volume Trend Q~U Rainbow 3D Moving Averages Rate Of Change (Price) Rate of Change (Volume) Relative Strength (Compare) Relative Strength Index (RSI) Safezone Indicator Simple Moving Average Slow Stochastic Smoothed Rate of Change (SROC) Standard Deviation Channels Stochastic Oscillator Trend Lines TRIX Indicator True Range Tw iggs Momentum Oscillator Tw iggs Money Flow Typical Price V ~Z Vertical Horizontal Filter (VHF) Volatility Volatility Ratio Volatility Stops Volume

Incredible Charts: Safezone Indicator

Most Popular Links

Colin Tw iggs' Trading Diary MACD Indicator Moving Averages Bollinger Bands Head & Shoulders Pattern Candlestick Charts Point & Figure Chart Patterns Parabolic SAR Average True Range RSI Relative Strength Stochastic Oscillator Tw iggs Money Flow

Safezone Trading Signals

Safezone stops are primarily used to time exits from a trending market. Use the exponential moving average to determine the trend and select the Safezone long or short option. Exit long positions when price crosses below the Safezone stop. Exit short positions when price crosses above the Safezone stop. Safezone cannot be used to signal entries as with some stop-and-reverse systems. EXAMPLE The RJ CRB Commodities Index late 2008 down-trend is displayed with Safezone (short, 22-day, multiple of 3) and 63-day exponential moving average used as a trend filter. Entries are taken when price makes a new 5-day low while below the moving average (or 5-day high when above the MA).

Getting Started
Dow nload & Install Select a Stock or Chart Indicators & Overlays Trendlines & Captions Watchlists Projects Stock Screener

The Psychology of Trading by Brett N. Steenbarger

www.incrediblecharts.com/indicators/safezone.php#safezone_setup

2/6

06/04/13

Volume Volume Oscillator Weighted Close Weighted Moving Average Wilder Moving Average Williams %R Williams Accumulate Distribute Williams Accumulation Distribution

Incredible Charts: Safezone Indicator

Mouse over chart captions to display trading signals.

1. 2. 3. 4. 5. 6. 7. 8.

Go short [S] when price is below Safezone and closes below the 63-day exponential moving average Exit [X] when price crosses above the Safezone Line Go short [S] when price makes a new 5-day low while below the 63-day MA Exit [X] when price crosses above Go short [S] when price makes a new 5-day low while below the 63-day MA Exit [X] when price crosses above Go short [S] when price makes a new 5-day low while below the 63-day MA Exit [X] when price crosses above the Safezone Line

The Point & Figure Method of Anticipating Stock Price Movements by Victor De Villiers & Owen Taylor

No long trades are entered while price is below the 63-day exponential moving average, nor short trades while above.

Safezone Setup
Default settings for Safezone are a 22-day period and a multiple of 2.5 times. Longer term traders may opt for wider multiples of 3.5 or 4.0. See Indicator Panel for directions on how to set up an indicator and Edit Indicator Settings to change the settings.

www.incrediblecharts.com/indicators/safezone.php#safezone_setup

3/6

06/04/13

Incredible Charts: Safezone Indicator

Join Our Mailing List

Read Colin Twiggs Trading Diary newsletter, with educational articles on trading, technical analysis, indicators and new software updates.

lanim2@yopmail.com
Join Now For FREE

We do not spam.

Safezone Formula
Define the Trend
First compare Closing Price to an exponential moving average to define the trend. If Closing Price is above the moving average for the selected period, that means that the trend (and the MA slope) is upward. If Closing Price is below the moving average, the trend is downward.

Directional Movement
The second element is Directional Movement. This is calculated in a similar fashion to DI+ and DI- in the Directional Movement System: +DM = Today's High - Yesterday's High (when price moves upward) -DM = Yesterday's Low - Today's Low (when price moves downward) The difference is that you can have both +DM and -DM on the same day. If there is an outside day then both calculations will be positive. For an inside day both calculations are zero.

Directional Movement Days

Calculate the number of days with +DM in the selected period; and the number of -DM days. Elder uses the same selected period for Directional Movement as he does for the moving average, but there appears to be no reason why this could not be varied. www.incrediblecharts.com/indicators/safezone.php#safezone_setup

4/6

06/04/13

reason why this could not be varied.

Incredible Charts: Safezone Indicator

When the Trend is UP

Calculate -DM Average: Sum of -DM for the period / Number of -DM days Then calculate the Stop Level for today: Today's Stop = Yesterday's Low - 2.5 * -DM Average To delay/prevent the stop from being lowered, use the maximum of the last 3 days' stops.

When the Trend is DOWN

Calculate +DM Average: Sum of +DM for the period / Number of +DM days Then calculate the Stop Level for today: Today's Stop = Yesterday's High + 2.5 * +DM Average To delay/prevent the stop from being raised, take the minimum of the last 3 days' stops. Note: We use a multiple of 2.5 in the above example, but any multiple between 2 and 4 is acceptable.

www.incrediblecharts.com/indicators/safezone.php#safezone_setup

5/6

06/04/13

Incredible Charts: Safezone Indicator

Safezone Evaluation
SafeZone has a number of strengths: Stops are less likely to move lower during an up-trend (or higher during a down-trend); SafeZone does not assume that the trend has changed every time that your stops are hit; and SafeZone uses Directional Movement rather than ATR as a measure of volatility. This is an excellent concept. It attempts to isolate counter- trend movement as the risk factor when following a trend and removes the other irrelevant component of volatility (movement in the direction of the prevailing trend). A runaway trend (or blow-off) may show little or no counter-trend movement, meaning that stops move tighter as the trend accelerates into a blow-off. Potential weaknesses: SafeZone fails to adequately distinguish between counter-trend movement and movement in the direction of the prevailing trend at the start of a trend or if the trend reverses within the selected time period. All DM and + DM is treated equally, whether the trend is up or down, giving an incorrect reflection of countertrend movement. The relatively short time period over which directional movement is calculated may not adequately reflect potential counter-trend movement. SafeZone relies on an exponential moving average to indicate trend direction, introducing some lag. There is nothing, however, to stop the trader from substituting another trend indicator in place of the moving average. Overall, a clever system.

Share:

Top of Page Hom e Term s of Use Privacy Advertise (pdf) Contact Us

Copyright 2001 - 2011 Vizhon Corporation and its associates. All rights reserved.

www.incrediblecharts.com/indicators/safezone.php#safezone_setup

6/6