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05/11/2022 |

How To Trade Using GoNoGo Trend®

Do you ever find yourself getting your indicator signals crossed? Maybe you have one too many moving averages on your chart, or a few different momentum indicators that are essentially tracking the same thing? If your indicators are keeping you from being able to clearly see price action then that might be a problem, but luckily, we have a solution!

Recently, we’ve added a fascinating, and very beautiful new indicator to the platform: The GoNoGo Trend@. This tool utilizes a ‘secret sauce’ of commonly used indicators and paints the candles based off the cumulative reading of all of the indicators contained within it.

The purpose here is two fold: First, it drastically cleans up your chart, offering an unimpeded view of price action. Additionally, it paints the candles in five easy to understand colors that represent the different levels of trend conditions that can occur. In this blog, we’ll breakdown how the GoNoGo Trend® can be utilized it in your trading, whether you’re long or short biased. First, however, a breakdown of the indicator.


Understanding GoNoGo Trend® Signals

The first thing you’ll note when you add the GoNoGo Trend® to your chart are the unique candle colors; Purple, Pink, Orange, Aqua, and Blue. What does each color mean?

Purple: Strong No-Go (Indicators contained within are flashing a strong ‘do not go long’ signal)

Pink: Weak No-Go (Indicators contained within are flashing a weak ‘do not go long’ signal)

Orange: Neutral (Mixed signal from indicators contained within, best to wait for more confirmation)

Aqua: Weak Go (Indicators contained within are flashing a weak ‘do not go short’ signal)

Blue: Strong Go (Indicators contained within are flashing a strong ‘do not go short’ signal)

As pictured above, the candles are painted in purple on the left hand side of the chart. The purple color represents that price is in a ‘Strong No Go’ trend. At this time, all of the ‘secret sauce’ indicators contained within GoNoGo Trend® are flashing bearish signals and it’s not advised to consider a long position. Next we see the color change to Pink. A potential bottom has been found and price has begun to reverse. Just as you’d look for rounding bottoms in your momentum indicators, divergences, or maybe moving average crosses to determine that price might be about to turn, you can use the Pink colored candles to let you know the same thing. They suggest that some of the indictors contained within GoNoGo Trend® are beginning to show signs of a bottom forming. Remember, however, it’s still in a ‘Weak No Go’ state and therefore it’s better to wait for more bullish colors to appear before attempting a long position.

Next, the color changes to Orange. Orange represents a ‘Neutral’ reading. This neutral reading suggests indecision. Price has arrived at a turning point level but has not yet crossed the threshold into bullish territory. We’re getting closer to a long signal here, but it’s still best to wait as the signal could shift back to ‘No Go’ quite easily from here. Then, the color changes to Aqua, which represents a ‘Weak Go’ reading. This is the beginning of a long signal, but do remember that this signal is weak, so it might be best to begin with just a starter position at this point.

Finally, the candle color shifts to Blue which represents a ‘Strong Go’ reading. This reading signals that all of the indicators contained within are now in bullish territory.  This is the safest time to take a long biased trade.

Now that we understand what each color means, let’s dig into how to actually take trades based off the GoNoGo Trend®.


Trading The GoNoGo Trend®

Though the colors make it very simple to understand what the trend is at any given time, the markets are rarely as simple as ‘buy when this happens’ and ‘sell when that happens’.  Take, for instance, the example below. The chart finds a bottom, and begins to reverse. We see two ‘Neutral’ colored candles, then two ‘Weak Go’ candles before the ‘Strong Go’ signal appears. In this theoretical position, we buy because we see the ‘Strong Go’ signal and we plan out our exit at one of two places: We can place a stop at or near our entry or we exit when we see the GoNoGo Trend® change from a ‘Go’ to a ‘No Go’ signal. Unfortunately, if we had taken this trade it would have been a loser regardless of our exit, but why did this happen?

First note the duration of the ‘No Go’ trend on the left hand side of the chart, and then the speed with which that trend changed. Rarely do bottoms reverse without some back testing, so it would be wise to allow the trend to develop further before taking the trade. More important, however, is to note the time frame we have selected. In this case, we’re utilizing the five minute time frame. As you get into smaller time frames, trends are going to change more quickly. So, then, how do we more thoroughly analyze the GoNoGo Trend® to place successful trades?

Utilizing Multiple Time Frames 

One of the key factors when doing any technical analysis is knowing the trend across multiple time frames. A setup might look enticing on a smaller time frame, but when you zoom out, you might find that the bigger time frame trend is counter to, or not quite as progressed as the smaller time frame trend that you’ve identified. Inversely, a setup on a small time frame might be supported by what’s happening on the bigger time frames. Remember, the markets have a tendency to be fractal. If setups are failing on the larger time frames, they’re usually failing on the smaller time frames first, and vice versa. In trading, it’s always best to work with a top down approach time frame-wise because the longer term trend will often dictate how the short term trends play out. Using that idea, let’s look at the same chart on a larger time frame.

When we look at the hourly time frame in the chart above, we see some very clear price action signals that are suggesting a change of trend. Namely, the hourly candle that contains our 5m buy signal was the first ‘Weak Go’ signal that had been seen on that time frame since the low was established. Had we been watching the hourly time frame, this candle would most certainly have piqued our interest and supported our smaller time frame long buy theory, but we would have likely waited for the ‘Strong Go’ signal to appear before entering into the trade. This would have allowed us to preserve both emotional and financial capital. We would have entered into the trade much closer to the larger move that occurred shortly thereafter, putting us in the trade just at the right time as opposed to jumping the gun on the lower time frame.

Remember, also, how we mentioned that markets have a tendency to be fractal? This is a perfect example of that idea. The lower time frames were first to experience the ‘Strong Go’ signal, and then following behind them were the longer time frames.


Staying With The Trend

Now that we understand how to utilize the GoNoGo Trend® on multiple time frames to get us into and out of a trade, let’s talk about how to use it to keep us in a trade.

Consider the chart below: On the left hand side is the weekly chart of the $QQQ from the Covid low. Note the GoNoGo Trend® changing from a ‘Neutral’ reading to a ‘Weak Go’ reading just a few weeks after the lows were made. This chart stayed in a ‘Weak Go’ or ‘Strong Go’ state for the entirety of the upside move. It never once gave us even a ‘Neutral’ signal. However, had you been focused on the daily chart on, there were multiple drawdowns that might have forced you out of the trade. Again, the focus here is on preserving emotional and financial capital. Keeping focus on the weekly time frame would have kept you in the trade longer, and ultimately, would have likely been much more profitable. When we saw the GoNoGo Trend® change from ‘Weak Go’ to ‘Neutral’ and then to ‘Weak No Go’ in January and February of 2022, that was a clear signal of a change of trend and a good reason for us to exit the long position we took back in 2020. Note, too, that this index has experienced nothing but pain since that signal change!

 


Using GoNoGo Trend With Other Indicators

If you don’t feel comfortable simply relying on the GoNoGo Trend® to provide you with entry and exit signals, you can add other indicators to your chart for further confirmation. Take, for example, the chart below. Specifically, note the divergence between price and RSI. Often, these sorts of divergences can suggest that strength is building even when price is suggesting otherwise. The divergence helps us stay on our toes. We don’t know exactly when the trend is going to change but we suspect that it might and our suspicions are confirmed on the gap up. Note the candle color changes quickly from Orange to Aqua to Blue. We take our entry when we see the ‘Strong Go’ signal and we begin to consider an exit when we see the candle color shift back to ‘Neutral.’ Presumably, as soon as we see the ‘Strong No Go’ signal, we get out of the trade, netting us a profit +5.7%.

It’s possible to trade divergences in both directions, long and short. The chart below contains and equal and opposite setup as the previous example. On the left hand side of the chart, we see price in a very strong ‘Go’ trend. As it continues to make higher highs, however, we see that RSI is making lower highs, suggesting that strength is declining as price is increasing. This is a warning sign and gives us the expectation that price action might make a turn at some point. We get one big ‘Neutral’ candle and then we see the trend change into ‘No Go’ territory. Had we taken a short at this point and held it until the GoNoGo® Trend shifted back to a ‘Go’ signal, we would have netted at least 29.27% on the trade. Had we held through the first signal change, we would have netted an additional 20% in profit by the next time it shifted to a ‘Go’ reading.

If you’d like to learn even more about the GoNoGo Trend®, please take some time to watch this video featuring the creators of the indicator, Alex Cole and Tyler Wood.


So there you have it, folks. Some basic ways to be thinking about how to utilize The GoNoGo Trend® in your technical analysis. We hope you found this helpful and we’d love to hear how you’re using this indicator! Feel free to reach out to us in chat with any questions or thoughts that you might have.