The Best Trend Indicators

RBTI, Ring of the best trend indicator is a special rating for trend indicators, showing their real ability to predict the market trend.

The absolute values of the RBTI rating can be interpreted as the maximum percentage return per month, provided that the maximum drawdown does not grow. 

The rating takes into account the ability to work on versatile forward tests (intervals outside the range of selecting the best parameters). The net profit is taken into account taking into account the drawdown and the recovery factor.

If you want to stop missing out on profits, we strongly recommend that you do not rely on intuition and evaluate your trend indicators in a reliable way.

A trend indicator is a technical analysis tool whose main task is to determine the current prevailing trend. The presence of a trend implies that in the future the price of a financial instrument will tend in its direction.

By applying some rules or different forms of interpretation, any indicator can be used to determine a trend. Therefore, by a real trend indicator, we mean a tool that gives only two types of signals: an uptrend or a downtrend.

A classic example of a trend indicator is the slope of a moving average. Its direction indicates the direction of the trend. Over the past decade, traders have created a huge number of tools to determine the trend. Unfortunately, most of them are useless and cannot outperform an investor who simply bought an asset 10 years ago in terms of profitability.

The logic of trend indicators or why it works in the real world. Traders want to participate in the movements of the market and even more do not want to sit on the sidelines when others are making money. As the movement intensifies, the trend becomes apparent to an increasing number of market participants. Traders open positions and the trend continues. The one who determines the true beginning and end of the trend before anyone else will earn the most. Trend indicators do not predict the future, they help to understand in a timely manner that it has already arrived.

A trend indicator can be the basis of a trading system. In this case, our profit will directly depend on the quality of his work. This is especially evident in systems aimed at long-term investment.

For more than 15 years of trading practice, we have come across a huge number of trend indicators. Some work better, some work worse. Many of us have favorite analysis tools. This is often a sentimental and unpractical choice. As a result, when we were faced with the choice of a trend indicator when designing exchange trading systems, we could not make an objective and confident choice. It usually ended with something like: this one defines the trend quite well, and we'll take it.

It's time to put an end to this! From now on, we will test all promising indicators and summarize them in a rating table. Evaluation criteria and testing methodology have been specially developed for this purpose. As a result, we will find the best trend indicator.

The rating will always be open to new applicants. And only a truly outstanding indicator can hold the first place. Fight, Search, Find and don't Give Up!

The conceptual basis for rating formation

The trend indicator may make mistakes, but it should not lie and be redrawn on already formed bars. To our surprise, the era of misleading consumers by redrawing indicators has not yet passed.

For testing, we will use the MetaTrader 5 trading terminal and an automatic expert Advisor. We apply the "always in position" strategy: when the trend changes according to the indicator, we will close the position and immediately open the opposite one. This approach provides the most objective insight into the abilities of a trend indicator to predict the future.

For the tests, we will use the symbol XAUUSD (gold). This financial instrument demonstrates a stable trend-based nature of movements. We have prepared a special custom symbol with a static spread corresponding to the current trading realities.

Choosing the timeframe is a bit more difficult. The D1 timeframe could be well suited for our purposes, but the depth of the story is not enough. As a result, the selection of parameters very often leads to retraining and, as a result, the inability to work on new data. The M15 timeframe increases the testing time too much. And as a result, successful parameters do not give too frequent transactions. In the noise of the M15, it is almost impossible to break the spread. A good golden mean would be the H1 timeframe (hourly).

Calculation of the RBTI v2.0 rating

1) We optimize the parameters for the interval 2013-2024, XAUUSD, H1. If it is not feasible to perform a direct search due to the number of parameters, then we use a genetic algorithm. We perform a total of 6 optimizations using a genetic algorithm based on the following criteria: Balance, 2 times Recovery Factor, Comprehensive Criterion, 2 times Profit Stability Index (ISP).

2) From the full list of received parameters, we select and fix 3 sets of parameters: maximum Balance, maximum Recovery Factor, maximum Profit Stability Index (ISP). We obtain and fix the Monthly Return Index (IMP) for each set of parameters:

IMP_opti_maxBalance, IMP_opti_maxRF, IMP_opti_maxISP. 

Calculating the average IMP for the optimization area:

Average_IMP_opti = (IMP_opti_maxBalance, IMP_opti_maxRF, IMP_opti_maxISP) / 3

3) We add to the optimization interval the sections of the history that were not taken into account when selecting the indicator parameters. One year (2012) from the beginning and one year (2024) from the end of the optimized section.

4) We run through the best parameters in the resulting interval. We record the results obtained as: IMP_all_maxBalance, IMP_all_maxRF, IMP_all_maxISP.

5) RBTI = (IMP_all_maxBalance, IMP_all_maxRF, IMP_all_maxISP) / 3

6) PC (Prediction coefficient) = (Average_IMP_alli / Average_IMP_opti) * 100

Selection of forward testing ranges

The forward test area is positioned in such a way as to capture a good trend period. The reverse forward test segment, on the contrary, falls during the trend-free consolidation period (flat).

This approach allows us to evaluate the effectiveness of the indicator in various market conditions. In the trend period, the indicator's ability to follow the trend and generate profits is tested, and in the flat period, its ability to avoid false signals and minimize losses is tested.