Tether Line indicator is a VertexFX client-side indicator that uses the concept of mean distribution in statistics to identify trend breakouts.
In mean distribution theory, half of the data points are greater than the statistical mean whereas the other half of the data points are less than the statistical mean. In the Tether Line indicator, the LENGTH input parameter specifies the number of data points.
Closing prices are used as the data points.
In the first step, we calculate the Highest High of the closed candles over the recent LENGTH candles. Similarly, we calculate the Lowest Low of the closed candles over the recent LENGTH candles. It should be noted that the current active candle is not considered in these calculations.
In the second step, we calculate the mid-point of the Highest High and the Lowest Low we calculated in the previous step. This is called the mean distribution level or the Tether Line. When the price is above the Tether Line the trend is considered bullish, and when the price is below the Tether Line the trend is considered bearish.
When the price is above the Tether Line, the indicator is painted RED, whereas when the price is below the Tether Line it is painted BLUE. Figure 1 illustrates the Tether Line indicator attached to the EUR/USD M5 chart. It can observe the indicator identifies a SHORT trend (depicted by the BLUE line) at the beginning of the chart, and then correctly identifies the trend reversal to LONG (depicted by the RED line).
SIGNALS:
1. A BUY signal is generated when the Tether Line indicator turns RED. This indicates a bullish trend.
The initial BUY stop-loss should be set to the nearest Swing Low. For subsequent candles, the stop-loss can be moved upwards and set to the RED Tether Line on a closing basis. The position should be exited at the close of the candle when the price closes below the stop-loss level.
2. A SELL signal is generated when the Tether Line indicator turns BLUE. This indicates a bearish trend.
The initial SELL stop-loss should be set to the nearest Swing High. For subsequent candles, the stop-loss can be moved downwards and set to the BLUE Tether Line on a closing basis. The position should be exited at the close of the candle when the price closes above the stop-loss level.
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