The Dolphin method was developed by Zhang (2008), and is based on Dow’s Theory. Dow believes that stock indexes can be divided into three trends: short term, medium term and long term trends. These three situations exist in any financial markets, where their directions can be different from each other. Thus, multiple time frame analysis is often deployed for forex trading robot development.
“Multiple time frame analysis is simply the process of looking at the same pair and the same
price, but on different time frames.” (Babypips, 2011). The trading platform can provide many
time frame charts for traders’ analysis. There are many choices for them –daily, hourly, per 30 minutes, per 5 minutes and even 1 minute. That means every trader can get different ideas from different charts. Fortunately, multiple time frame analysis can define a personal time frame strategy to every trader. The following table presents feature of different time frames.
Time frame Description Advantage Disadvantage Long term Dow’s theory believes
the long-term time frame usually refers to daily and weekly charts.
Traders do not care about the change in short term charts. There is little chance to trade and the
Considerable price changes may cause large losses.
A high requirement for the initial amount
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The weekly time frame will help traders to focus on long term trends, which will assist them in determining entry points in medium term.
The long term trading persists for a few weeks or months, or even up to one year.
spread can be ignored.
There is much time to consider before entering the market. Traders do not worry about the lost trading opportunities.
of the trader’s account, which can protect against losses from the low validity market environment. Not enough
opportunities to trade.
Medium term (Swing) The 4-hour chart and hourly chart are the best choices for traders’ analysis in swing markets. The trading can last several days.
More transactions in trading, and less spread fee in months.
More spread fee. Traders must consider the overnight and over week risk.
Short term (Intraday) The minute charts can be selected by short term traders to catch any possible
opportunities. The short term trading only persists intraday.
There is no risk for overnight market environment change. Traders can get more opportunities to trade.
Too much high spread fee. Traders have little time to think before they get trading opportunities. Low profit for each transaction.
Table 3-3 Time frame selection
Zhang (2008) believes the long-term chart can help traders to determine the main trend. Medium term it will assist them in predicting both the lower time frame and the higher time frame, and short term it will issue the potential entry point. Therefore the concept of time frame combination is provided by Babypips (2011). The suitable time frame combination is presented below.
1-minute chart for short term, 5-minute chart for medium term, and 30-minute chart for main trend determination.
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5-minute chart for short term, 30-minute chart for medium term, and 4-hour chart for main trend determination.
1-hour chart for short term analysis, 4-hour chart for medium term, and daily chart for main trend determination.
The basic rule of this system is presented below:
The dolphin system applies 5 major technical indicators in forex robot trading. They are MACD (5, 34, 5), KD (8, 5, 5), MA (26, 52, 104, 360), Envelope (26 – 0.62%, 0.31%) and Time (M5 – M30 – 4H).
The time frame selection is based on trader’s habits, and thus determines their main trading session. This means that the principle of determining the main session is decided by traders. The trends determination is used to move to the larger time frame, and the smaller time frame is used to issue the entry point.
1. The principle of trend determination is based on technical indicators MA (26) and MACD (5, 34, 5). When the price is greater than MA (26) and the MACD value is greater than signal, the current trend is considered bullish. As the price is less than MA (26) and the MACD value is greater than signal, the current trend is considered bullish too. If the price is greater than MA (26) and the MACD value is less than signal, the current trend is considered bearish. While the price is less than MA (26) and the MACD value is greater than signal, the current trend is considered bearish.
2. The position size calculation of the dolphin system follows the formula, Comfort level = (account balance * 1% / fluctuation) * (lot size / pip value)
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3. The rule of entry point selection is based on the indicator of KD (8, 5, 5). The long signal is generated when the value line crosses above the signal line. On the other side, the short signal is conducted by the dead cross of the KDs.
4. This trading system uses the golden channel as a profit determination tool. When the price hits the boundary of the golden channel, the transaction will be closed for taking profits. The related technical indicators of the golden channel is Envelope (26 – 0.62%, 0.31%).
5. The stop loss setting is special in this trading system. Zhang (2008) believes that when the price moves more than 9 candles in the current chart, the trend will be going to end. Therefore, traders should close the current trading after 9 sticks are completed.
The algorithm for MQL4 script can be represented as below.
extern int distance = 10; //---- time frames
extern int mainframe = 240; extern int currentframe = 30; extern int entryframe = 5; //---- data buffers double maintrendline[]; double currenttrendline[]; double currentlma[]; double upstop[]; double downstop[]; double buy[]; double sell[];
filter = iMACD(NULL , 0 , 14 , 84 , 5 , PRICE_CLOSE , MODE_MAIN , pos+1); f_s = iMACD(NULL , 0 , 14 , 84 , 5 , PRICE_CLOSE , MODE_MAIN , pos+2);
kd = iStochastic(NULL , 0 , 8 , 5 , 3 , MODE_SMA , 1 ,MODE_MAIN , pos); kdp = iStochastic(NULL , 0 , 8 , 5 , 3 , MODE_SMA , 1 , MODE_MAIN , pos+1); kd_s = iStochastic(NULL , 0 , 8 , 5 , 3 , MODE_SMA , 1 , MODE_SIGNAL , pos); kdp_s = iStochastic(NULL , 0 , 8 , 5 , 3 , MODE_SMA , 1 , MODE_SIGNAL , pos+1);
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if(kd > kd_s && kdp < kdp_s && Open[pos] < upline && Open[pos] > currenttrendline[pos] && Open[pos] > maintrendline[pos])
{
buy[pos] = line_bottom; }
else if(kd < kd_s && kdp > kdp_s && Open[pos] > downline && Open[pos] < currenttrendline[pos] &&Open[pos] < maintrendline[pos]) { sell[pos] = line_top; }
else if(Close[pos+1] < maintrendline[pos] && Open[pos+1] > maintrendline[pos] && Open[pos] < upline && Open[pos] > currenttrendline[pos]
&& Open[pos] > maintrendline[pos] && filter > f_s) {
buy[pos] = line_bottom; }
else if(Close[pos+1] > maintrendline[pos] && Open[pos+1] < maintrendline[pos] && Open[pos] > downline && Open[pos] < currenttrendline[pos]
&& Open[pos] < maintrendline[pos] && filter < f_s) {
sell[pos] = line_top; }
else if(Close[pos+1] < currenttrendline[pos] && Open[pos+1] >currenttrendline[pos] && Open[pos] > currenttrendline[pos]
&&Open[pos] > maintrendline[pos] && filter > f_s) {
buy[pos] = line_bottom; }
else if(Close[pos+1] > currenttrendline[pos] && Open[pos+1] < currenttrendline[pos] && Open[pos] < currenttrendline[pos]
&&Open[pos] < maintrendline[pos] && filter < f_s) {
sell[pos] = line_top; }
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