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The Safezone indicator, introduced by Alexander Elder in 2002, is used as a stop order against signal reversal in trending markets.
The Safezone indicator intends to create a better trailing stop by eliminating the noise component of a trend and by creating a safer stop. It calculates two lines depending on an uptrend or a downtrend. These lines will be used as stops, one for long positions and another for short positions.
The function, I have uploaded, creates the SafeZone for long positions. It has two parameters: the lookback period, which defines the number of bars to use for the calculation and the coefficient. Generally, traders use a value of 20 for the lookback period and a value of 2 for the coefficient.
To use this function as a trailing stop in the simulator, enable trailing stops in your trading system, change the stop settings to (Point) then set the value of the stop to the following formula: close - safezone(20, 2);
You can also use it as a sell rule: sell = close < safezone(20, 2);
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