I got several emails and positive comments on Doda-Donchian indicator posted few weeks back. Most of you admitted that it gives very good & accurate signals. But, like no indicator can be 100% accurate, this indicator also sometimes false signals.Today, I’ll discuss something about filteration of false signals from Doda-Donchian indicator.
For that, I’m posting the technical chart of EURUSD at time frame H4 with indicators – Doda-Donchian, Doda-Bollinger and BBSqueeze Dark. All these 3 indicators for MetaTrader can be downloaded from indicators section of this website.
Around 17-Feb-2011, Doda-Donchian & Doda-Bollinger gave buy signals and after few hours of volatility, EURUSD currency pair started their uptrend. Then, around 2-Mar-2011, the price closes below Doda-Donchian line; thus giving sell signal. But the price again started moving upward after couple of candles. That was the false signal. So, we need to filter out such false signals from out trading desk.
The solution is in Doda-Bollinger bands. If you look at the chart, Doda-Bollinger band was intact during that false signal and did not change its signal. Even if you look at BBSqueeze dark indicator, it also continued in buy zone i.e. blue histogram with green dots. So, one can easily spot out such false signals, when powerful indicators have different views.
Generally, I’ve observed that powerful signals are given by Doda-Donchina and Doda-Bollinger bands almost at the same time. If they behave differently, it’s better to wait for common view rather than taking risk. After all, opportunities are always there in this market.
Share your doubts in comments section below.