Introduction to the SSL Indicator
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Short-term trends and momentum reversals are excellent trade entry signals which traders can use to open and close trades. Average price movements such as those based on moving average lines can be a good starting point for identifying momentum reversals.
The SSL Indicator is one of those indicators that attempts to provide momentum reversal signals based on average price movements.
What is the SSL Indicator?
The SSL Indicator is a custom trend following technical indicator which can be used to identify short-term trend or momentum reversals. It is based on a moving average which has been modified in order to properly identify the average price of the short-term momentum, as well as its reversals.
How the SSL Indicator Works?
As mentioned earlier, the SSL Indicator is based on a modified moving average based on the average price movements. It does this by basing the average on the highs and lows of each period. In fact, it is somehow a Simple Moving Average (SMA) of the Median Price.
The SSL Indicator further modifies such moving average of the Median Price by shifting the line below price action whenever it detects a bullish momentum, and above price action whenever it detects a bearish momentum. It also detects momentum reversals only when price closes on the opposite side of the SSL line.
Below is a chart comparing a 10 SMA line based on the Median Price and the SSL line. Notice how the SSL line tracks the 10 SMA line only shifting above or below it on momentum reversals.
How to use the SSL Indicator for MT4?
Given the nature of the SSL indicator, which is as a trend following technical indicator based on a short-term moving average, its use is also somewhat similar to moving average lines.
It can be used as a short-term trend or momentum direction filter wherein traders can opt to trade only in the direction indicated by the SSL indicator based on its interaction with price action.
It can also be used as a trend or momentum reversal signal indicator based on the shifting of the line below or above price action.
Lastly, given that its line is shifted away from the average of the Median Price, it can also be used as a basis for stop loss placements, trailing stop losses, and exit signals.
Buy Trade Setup
When to Enter?
Enter a buy order as soon as price action crosses above the SSL line, while the SSL line shifts below price action. Set the initial stop loss below the SSL line.
When to Exit?
Trail the stop loss below the SSL line as the momentum reversal signal continues. Continue trailing the stop loss until stopped out in profit.
Sell Trade Setup
When to Enter?
Enter a sell order as soon as price action crosses below the SSL line, while the SSL line shifts above price action. Set the initial stop loss above the SSL line.
When to Exit?
Trail the stop loss above the SSL line as the momentum reversal signal continues. Continue trailing the stop loss until stopped out in profit.
This momentum following indicator can be an excellent entry signal for trades which are based on short-term or momentum reversal setups. However, it is not a standalone indicator. It is best to pair this indicator with a long-term trend indicator or merely as a confirmation of other trade setups.