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The ShieldedTrend indicator is based on a smart combination of two widely used trading methodologies: Heikin-Ashi candles 📊 and exponential moving averages (EMA) 📈. Here’s the step-by-step logic:
1️⃣ Base: Modified Heikin-Ashi Candles
Heikin-Ashi candles are a smoothed version of traditional candles, designed to filter out market noise. Their original calculation uses price averages, but ShieldedTrend modifies them in two key ways:
- Heikin-Ashi Close:
Calculated as the average of the 4 main prices of the real candle:
(Open + High + Low + Close) / 4 🔄. - Heikin-Ashi Open:
Not taken directly from the real price, but rather the average of the previous Heikin-Ashi candle’s open and close.
This creates a natural "smoothing" effect that removes sharp fluctuations, making trends clearer.
2️⃣ Smoothing with EMA
ShieldedTrend applies an exponential moving average (EMA) to both components of the Heikin-Ashi candles:
- Smoothed Open Line:
The EMA applied to the Heikin-Ashi open. - Smoothed Close Line:
The EMA applied to the Heikin-Ashi close.
The EMA gives more weight to recent data, allowing the indicator to react quickly to trend changes while maintaining smoothness.
3️⃣ The "Protection Zone" (Shield) 🛡️
The colored area between the two lines (smoothed open and close) acts as a buffer or confirmation zone:
- Zone Width:
Depends on the difference between the two lines. - Wide area = Strong trend (lines are far apart) 💪.
- Narrow area = Indecision or weak trend 🤔.
4️⃣ Integrated Trading Logic
- Trend Signal:
A color change indicates a potential reversal (e.g., cyan to purple = possible start of a downtrend) 🔵🟣. - Trend Strength:
The width of the colored area acts as a confidence filter: - Only trade if the area is wide enough (avoids choppy markets) ✅.
- Protection Against False Moves:
If the area suddenly narrows, it suggests the current trend may be losing momentum—even if the color hasn’t changed yet ⚠.
🌟 Why Does It Work?
- Heikin-Ashi + EMA: Smoothes price twice (candles + moving average), filtering out 90% of noise 🎯.
- Protection Zone: Avoids trading in unclear markets, reducing failed trades 📉➡️📈.
- Visual Approach: The combination of color and area makes it easy even for beginner traders to spot patterns quickly ⚡.
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