This indicator is designed to help traders **identify strong trends** using the **Kalman Filter** and **ADX** (Average Directional Index). It provides **Buy/Sell signals** based on trend direction and ADX strength. I wanted to create something for Indian markets since there are not much available.
In a nut-shell: ✅ **Buy when the Kalman Filter turns green, and ADX is strong. ❌ **Sell when the Kalman Filter turns red, and ADX is strong. 📌 **Ignore signals if ADX is weak (below threshold). 📊 Use on 5-minute timeframes for intraday trading.
------------------------------------------------------------------------ 1. Understanding the Indicator Components**
- **Green Line:** Indicates an **uptrend**. - **Red Line:** Indicates a **downtrend**. - The **line color change** signals a potential **trend reversal**.
**ADX Strength Filter** - The **ADX (orange line)** measures trend strength. - The **blue horizontal line** marks the **ADX threshold** (default: 20). - A **Buy/Sell signal is only valid if ADX is above the threshold**, ensuring a strong trend.
**Buy & Sell Signals** - **Buy Signal (Green Up Arrow)** - Appears **one candle before** the Kalman line turns green. - ADX must be **above the threshold** (default: 20). - Suggests entering a **long position**.
- **Sell Signal (Red Down Arrow)** - Appears **one candle before** the Kalman line turns red. - ADX must be **above the threshold** (default: 20). - Suggests entering a **short position**.
2. Best Settings for 5-Minute Timeframe** For day trading on the **5-minute chart**, the following settings work best:
- **Kalman Filter Length:** `50` - **Process Noise (Q):** `0.1` - **Measurement Noise (R):** `0.01` - **ADX Length:** `14` - **ADX Threshold:** `20` - **(Increase to 25-30 for more reliable signals in volatile markets)**
3. How to Trade with This Indicator**
**Entry Rules** ✅ **Buy Entry** - Wait for a **green arrow (Buy Signal). - Kalman Line must **turn green**. - ADX must be **above the threshold** (strong trend confirmed). - Enter a **long position** on the next candle.
❌ **Sell Entry** - Wait for a **red arrow (Sell Signal). - Kalman Line must **turn red**. - ADX must be **above the threshold** (strong trend confirmed). - Enter a **short position** on the next candle.
**Exit & Risk Management** 📌 **Stop Loss**: - Place stop-loss **below the previous swing low** (for buys) or **above the previous swing high** (for sells).
📌 **Take Profit: - Use a **Risk:Reward Ratio of 1:2 or 1:3. - Exit when the **Kalman Filter color changes** (opposite trend signal).
📌 **Avoid Weak Trends**: - **No trades when ADX is below the threshold** (low trend strength).
4. Additional Tips - Works best on **liquid assets** like **Bank Nifty, Nifty 50, and large-cap stocks**. - **Avoid ranging markets** with low ADX values (<20). - Use alongside **volume analysis and support/resistance levels** for confirmation. - Experiment with **ADX Threshold (increase for stronger signals, decrease for more trades).**
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