The impulse system was developed by Dr. Alexander Elder over 20 years ago. If you wish to use or trade the system, you should have a look at the books
- Come into my trading room (about 5 pages deal with the impulse system)
- Entries & Exits - Visits to Sixteen Trading Rooms
The system basically looks at higher timeframe and lower timeframe
momentum. You enter a trade when the lower timeframe momentum aligns to the higher timeframe momentum.
For both timeframes, momentum is measured with the help of only two indicators, an EMA(13) and a MACD (12,26,9).
Momentum trading was a fashion of the 1990s. Momentum trades for trend following were entered after a
breakout (Turtle Trader) or after a retracement.
The impulse system is a good example for a systemic, rule based approach to trading. It is definitely worth a look, although I doubt that it can still be profitably traded today.
It is pretty easy to implement the system with
NinjaTrader. All you need is
- a higher timeframe EMA - for instance an EMA(65)
- a lower timeframe EMA - for instance an EMA(13)
- a higher timeframe MACD - for instance a MACD (60, 130, 45)
- a lower timeframe MACD - for instance a MACD (12,26,9)
These indicators are NinjaTrader in-built indicators and you may directly call them from a strategy. Such a strategy can be built with the strategy builder of NinjaTrader, no coding required.
By the way, Dr. Alexander Elder used two charts - a higher timeframe and lower timeframe chart - with the same indicators. As an alternative you may use a single chart with higher and lower timeframe indicators.
This is what I suggested above. Instead of two charts with a timeframe multiplier of 5 (daily and weekly) I have muliplied the lookback periods of the indicators with 5.
This method is not suited for all types of indicators, but it can be done with the EMA & MACD thanks to the early work of Jack K. Hutson, see article: Filtering Price Data: Moving Averages vs. Exponential Moving Averages.
The result is an easier implementation of the impulse system on a single chart.
The system also requires a trailing stop to exit trades.
I think that the impulse system is a good point to start, if you wish to get an idea of momentum trading. It will probably be necessary to modify the original system to make it profitable for today.
