This well-known trading system trades in the direction of the trend and is be used to trade all forex pairs. Two of the most traditional technical analysis indicators are combined in the Black Dog system: moving averages and MACD.

The Black Dog system in detail

The system consists of four components. Each component has a different function. All four components are available as a combined system in the NanoTrader trading platform (try a demo).

1. The Black Dog overall trend

To determine the overall trend, two long-term moving averages are calculated. The system’s creator calls these the “black dogs”. These average are not visible in the chart. They are responsible, however, for the colour of the chart's background. If the black dogs are bullish the chart background is green.  If the black dogs are bearish the chart background is red.

2. The Black Dog channel

A high-low channel is calculated using two medium-term moving averages. The channel is green, when the medium-term trend is bullish. The channel is red, when the medium-term trend is bearish.

3. The Black Dog entry line

A short-term moving average is used to spot entry signals. This is the blue line in the chart.

4. The Black Dog histogram

The Black Dog’s MACD histogram serves as a filter for the entry signals. The histogram is visible below the main chart. Again the colour is important. Green indicates that buy signals can be traded. Red indicates short sell signals can be traded.

Figure 1. The four components of the Black Dog system. (1) The background of the main chart is either green or red depending on the overall, long-term trend. (2) The Black Dog Channel, which indicates the medium-term trend. (3) The blue Black DOg entry line, used for signals. (4) The histogram, below the main chart, which serves as signals filter.

The conditions for a valid trading signal

At this stage it is interesting to note that the designers of the Black Dog system do not use it as a stand-alone trading system (altough precise criteria for a valid signal are provided). Rather they use their system in conjunction with other strategies to see if signals occur on or around the same point in time.

Figure 2. A buy signal. The four Black Dog components are interpreted as the criteria for a buy signal as follows:

1. The background of the chart is green, therefore the long-term trend is bullish.
2. The High-Low channel is green, therefore the medium-term trend is also bullish.
3. The market price crosses back above the blue entry line.
4. The histogram is green, therefore the filter accepts buy signals.

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