Introduction to the Forex TMS Watch Dog Indicator
The Forex TMS Watch Dog Indicator is a technical analysis tool used by forex traders to help identify potential trading opportunities. TMS stands for Trading Made Simple, and the indicator was developed by a community of traders who follow the Trading Made Simple system and philosophy of forex trading.
The TMS Watch Dog Indicator functions as an objective entry and exit signal generator based on certain rules and conditions. It aims to eliminate the subjective biases and emotions from trading decisions. The indicator uses a combination of various technical analysis techniques to determine overbought and oversold levels as well as trend direction.
Some key features of the TMS Watch Dog Indicator include:
- Combination of multiple indicators into a single consolidated signal
- Uses moving averages, RSI, stochastic oscillator, ADX and more
- Gives clear long and short signals with pop-up alerts and audio alerts
- Customizable parameters and settings to suit different trading styles
- Works well across all timeframes and currency pairs
How the TMS Watch Dog Indicator Works
The TMS Watch Dog Indicator for MetaTrader 4 is made up of several components that work together to generate trading signals:
Two exponential moving averages are used – a faster EMA and a slower EMA. Crossovers between the EMAs help determine trend direction. The Watch Dog uses the 13 and 48 period EMAs by default.
The relative strength index measures momentum and oscillates between 0 and 100. The Watch Dog uses the standard 14 period RSI. Overbought above 70 and oversold below 30 levels are considered.
The stochastic oscillator is used to identify overbought and oversold levels. The Watch Dog uses the standard 14,3,3 stochastic parameters.
Additional filters like the ATR trailing stop, price rejection filters and volatility filters are used to improve signal accuracy and reduce whipsaws.
The Watch Dog combines signals from the indicators above based on a set of rules to generate final long and short trade entries and exits. The rules aim to only take high probability trades in the overall trend direction.
Trading with the TMS Watch Dog Indicator
The TMS Watch Dog Indicator can be used across all timeframes and currency pairs. However, it is generally recommended for use on the 1 hour chart and higher timeframes. Lower timeframes tend to produce more false signals and whipsaws.
Once added to the chart, the Watch Dog will continuously scan price action and look for opportunities. When a new long or short signal is generated, it will be marked on the chart with a colored arrow and a pop-up alert window.
Long (Buy) Signals
A long signal is generated when the faster EMA crosses above the slower EMA, RSI moves above 50, stochastic crosses above 20 and ADX is above 25. Additional filters also need to align before a final long entry arrow is shown.
Short (Sell) Signals
A short signal is generated when the faster EMA crosses below the slower EMA, RSI moves below 50, stochastic crosses below 80 and ADX is above 25. Additional filters also need to align before a final short entry arrow is shown.
It is recommended to wait for a full bar close before entering a Watch Dog signal bar. Stop losses can be placed just below the signal bar for longs and above the signal bar for shorts. Take profit levels can be set at previous swing points or using a risk reward ratio.
Benefits of Using the TMS Watch Dog Indicator
Here are some of the key benefits of using the TMS Watch Dog Indicator:
- Provides objective entry and exit signals removing emotional bias
- Combination of multiple indicators improves accuracy
- Works well in trending and ranging markets
- Clear alerts allow for quick reaction to signals
- Customizable parameters to suit different trading styles
- Simplifies analysis process with a single consolidated indicator
- Can be used across all timeframes and currency pairs
The Watch Dog indicator eliminates the need for manually scanning multiple indicators and looking for alignments. Traders can focus on executing the signals generated rather than analyzing the charts.
Optimizing Parameters for the Watch Dog Indicator
The TMS Watch Dog comes with default parameters that work well for most market conditions. However, traders can further optimize the values based on their trading style. Some parameters that can be adjusted include:
The default periods are 13 and 48. Faster or slower EMAs like 9, 21 or 34, 55 can be tested. Using very long EMAs will make it more trend following.
The default RSI period is 14. Other values like 7 or 21 can be tried. Overbought and oversold levels can also be adjusted higher or lower if needed.
The 14,3,3 stochastic can be changed to faster or slower values like 7,3,3 or 21,13,13. Overbought and oversold levels can also be customized.
ADX Period and Level
The default ADX period is 14. Other values can be evaluated. The trend filter level can also be adjusted higher or lower than 25.
The best way to optimize the Watch Dog parameters is to run it through historical data and measure the performance in different market conditions. Parameters that maximize long term profitability should be selected.
Using the Watch Dog Indicator with Other Trading Tools
The TMS Watch Dog Indicator works best when combined with other analysis techniques and tools. Here are some ways it can be used with other trading resources:
- Price Action Analysis – Look for Watch Dog signals that align with support, resistance, trends, chart patterns and candlestick signals.
- Other Indicators – Use oscillators, moving averages and trend tools to confirm Watch Dog signals. For example, only take buy signals if an uptrend is confirmed by a 200 EMA.
- Trading Journal – Keep track of Watch Dog signals taken, reasons for taking signals, trade outcomes and performance stats. Review periodically to improve use of the indicator.
- Fundamental Analysis – Be aware of major news events and how they may impact the markets when taking Watch Dog signals. Use fundamental analysis to gauge overall market conditions.
- Money Management – The Watch Dog indicator provides entry signals. Effective money management through stop losses, take profit levels and risk-reward ratios is still essential.
Combining the Watch Dog with price action, other indicators and proper strategies can really improve trading results. The indicator provides objective signals but subjective analysis is still required for timing trades well.
Common Mistakes to Avoid When Using the Watch Dog Indicator
While the TMS Watch Dog Indicator can be very useful, traders do need to avoid some common mistakes:
- Over-Reliance – Don’t take every signal blindly. Also incorporate price action and other factor analysis.
- Lack of Strategy – Have a trading plan that defines entry, exit and risk management rules.
- Not Tracking Performance – Keep records of trades taken based on signals and review what is working.
- Ignoring Parameters – Don’t optimize parameters to fit just limited historical data. Test it in different market conditions.
- Curve Fitting – Don’t tweak too many settings to fit past price data. This leads to curve fitting and future underperformance.
- No Money Management – Don’t risk too much per trade. Use proper stop losses and risk-reward ratios.
Avoiding these common errors allows traders to use the indicator more effectively as part of a complete trading plan. The Watch Dog works best when combined with discretionary analysis and robust strategies.
Alternatives to the TMS Watch Dog Indicator
While the Watch Dog indicator is quite useful, there are some alternatives traders may want to look at:
- Moving Average Crossover – A simple moving average crossover system can also be effective for trend following.
- MACD – The moving average convergence divergence indicator also combines trend and momentum analysis.
- Ichimoku Cloud – The Ichimoku system offers an integrated approach with moving averages and multiple lines.
- Parabolic SAR – The parabolic SAR indicator offers clear trend reversal signals that can be traded.
- Donchian Channels – Donchian channels provide trading signals when price breaks out of the channel.
- Trend Lines – Drawing uptrend and downtrend lines also allows basic trend trading.
These alternatives may suit certain trading styles better or work well when combined with the Watch Dog indicator. Traders are encouraged to test different tools to find what works best for them.
The TMS Watch Dog Indicator provides traders with an objective technical analysis system to identify high probability forex trading opportunities. By combining signals from various indicators into a consolidated alert system, the Watch Dog eliminates emotional bias and simplifies analysis.
To use the indicator effectively, traders should optimize parameters, employ good money management, and combine it with price action and fundamental analysis. Avoiding common errors allows traders to integrate the Watch Dog as part of a robust trading plan. With the right techniques, the Watch Dog Indicator can significantly improve forex trading performance.