The Da Vinci Indicator combines momentum indicators to tell the direction of the trend. This guide will talk about how the indicator works and how you can apply it as a strategy.
What is the Da Vinci Indicator?
Just like the Da Vinci code, the Da Vinci indicator combines momentum indicators. These indicators don’t appear on the chart; they plot arrows (red and blue). These arrows act as trend confirmation.
Da Vinci’s calculation uses indicators including Bollinger Bands, CCI (Commodity Channel Index), Moving Average, and RSI (Relative Strength Index).
If you know about these indicators, you probably know that these are one of the most popular momentum indicators and help identify trends.
Da Vinci Indicator Strategy
You must look at the red and blue arrows to trade with the indicator. There are two ways to look at these arrows. One way is that the trend is about to reverse whenever the red arrow appears at the top of an uptrend. Conversely, if the blue arrow appears in a downtrend, it suggests a bullish reversal.
The second way to trade with the Da Vinci indicator is to confirm the signals as trend continuation. For instance, if the indicator plots blue arrows in an uptrend, the uptrend will likely continue.
In addition, Da Vinci has different color arrows within the trend. For instance, the system can plot several blue arrows if there is a downtrend. You can take this as an exit point or use other indicators like the traditional RSI or Bollinger Bands to confirm the trend’s direction.
It’s important to note that the indicator can repaint, so it’s better to wait for Da Vinci to paint the arrow and then enter the next candle.
The indicator works on all timeframes. However, it’s best to apply it on longer timeframes to help filter out market noise.
Buy Signal
- The indicator must plot the blue arrow.
- Wait for the current bar to complete, and then enter.
- Place a stop-loss at the recent low or the blue arrow.
- Set take-profit at the previous high or exit the trade when the red arrow appears.
Sell Signal
- The indicator must plot the red arrow.
- Wait for the current bar to complete, and then enter.
- Place a stop-loss at the recent high or the red arrow.
- Set take-profit at the previous low or exit the trade when the blue arrow appears.
Da Vinci Indicator Pros & Cons
Like many other indicators, you can’t rely specifically on Da Vinci for trading. You have to understand the pros and cons first.
Pros
- The Da Vinci indicator combines multiple indicators for its calculations.
- It is easy to understand.
- The indicator can present clear entry and exit points.
Cons
- The red and blue arrows can appear in a downtrend and uptrend, which can be confusing.
- The system can repaint.
Conclusion
The Da Vinci indicator combines momentum indicators and plots arrows on the chart. The arrows act as trend continuation and trend reversal. One thing to remember is the indicator can repaint, so it’s better to add other indicators when trading with Da Vinci. I would be looking at price action including support and resistance levels along with any bullish or bearish candlestick patterns. As with any forex strategy, you should have excellent money management so that one bad trade does not cancel out a consecutive run of winners. You can always practice trading on a forex demo account to begin with to improve your trading skills and build up your confidence. Most forex brokers provide a free demo account, including IC Markets. They are my top choice for both manual and automated forex trading systems. This is because they have tight spreads, quick execution speeds, low commission fees and excellent 24/7 support.
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