The High-Low Activator and the Swing Trend Indicator

I saw two simple indicators in Robert Krausz's book, W.D. Gann Treasure Discovered: Simple Trading Plans for Stocks & Commodities.

The High-Low Activator

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The first one is called the HiLo Activator, which are the red and blue dots on the charts. The red dots are the 3-bar mean of recent highs (including current one), and the blue dots are the mean of the lows of the current 3 bars. When the last blue dot is broken through (open above and close below), only red dots are shown, and vice versa. The value of the dot can only be shown after the bar is closed

As you can see, it works very much like the Parabolic SAR: when the indicator changes from blue to red, it signals a top, and when red to blue it's a bottom. Once the previous dot is broken through, entry is immediately done, with stoploss being the last high or low, depending on the direction.

The Gann Swing Trend

The second indicator is called the Gann Swing Trend Indicator. It is a ZigZag line that joins up the peaks and valleys of the chart. The definitions of peaks and valleys are as follows:

Peaks (downswing): preceded by 2 lowers highs and followed by 2 lower lows.
Valleys (upswing): preceded by 2 lowers lows and followed by 2 higher highs.

Note that they are different from the popular indicator of fractal, which is invented by Bill Williams.

There is one more twist about the indicator:

This indicator changes colour when "trend" changes. The definition of an uptrend is that the price closes above the previous peak. The indicator, upon breakout, changes from dotted line to solid line. Conversely, the definition of an downtrend is that the price breaks through the previous low point, and the indicator changes from solid line to dotted line.

The Basic Idea

These two indicators alone can already make up a very mechanical yet profitable system. Here is how it is done:

Long Entry in Trend Trading (whichever hit first):

1. Trend Indicator is soild, and HiLo changes from red to blue.
2. Trend Indicator is soild, HiLo is below price, and price closes above previous peak.

Long Entry in ContraTrend Trading:

1. Trend Indicator is dotted, price pass through the high of the bar that closes above HiLo (does not have to be next bar).
   

Trailing Stop for Long Entry (whichever hit first):

1. Price closes below HiLo.
2. Price moves through the 38.2% retracement of the first upward swing since entry (don't wait for closing below HiLo).

Re-entry rule (after stopped out by trailing stop described above):

1. After stopped out by trailing stop, go long again if the previous peak is overtaken by two ticks.
2. If the price reverses and hits the stop loss right after entry, re-enter as soon as the price closes through the nearest peak.
   

Everything is the opposite for Short Entry.

Believe it or not, in many years of backtesting in T-Bonds, this system never shows a losing year, and the "worsing performing" year features a 30% return and 11% drawdown! And when it is going strong, it can be as good as over 100% return and as little as 7% drawdown! For more details please read the book.

However, the above is only the basic use of the above indicators. For a improved "professional" strategy, please see: http://www.scribd.com/doc/6710695/Fibonacci-Trader-the-Professional-Gann-Swing-Plan-2002-Robert-Krausz.