The trading strategy known as "Didi Index" was created by the Brazilian analyst Odir Aguiar, also known as Didi. It involves plotting three simple moving averages (SMA3, SMA8, SMA20) with different periods on a chart to observe potential reversal points.
Logic of the algorithm:
- The algorithm plots two sets of moving averages on the oscillator chart:
- Short series: SMA3 (3-period simple moving average) and SMA8 (8-period simple moving average)
- Long series: SMA20 (20-period simple moving average) and SMA8 (8-period simple moving average)
- Seeks for the first signal: occurs when the short series (SMA3-SMA8) crosses above the long series (SMA20-SMA8). This crossover can indicate a potential change in trend direction.
- Seeks for the first confirmation: occurs when the short series crosses over the zero line on the oscillator chart. This confirms the potential bullish signal.
- Seeks for the second confirmation: which happens when the long series crosses under the zero line on the oscillator chart. This confirms the potential bearish signal.
- Fires: the algorithm generates a buy (or long) signal if the following conditions are met:
- The short series is pointing up (positive slope).
- The long series is pointing down (negative slope).
- The scenario remains stable, indicating that the crossover signals are holding.
- The configuration is pre-set to use 1-hour candles for the chart, and the algorithm does not recommend going below 30-minute candles for better accuracy.
- For additional confirmation, the algorithm suggests combining the Didi Index with a volume increase indicator. Increased volume during the crossovers or trend changes can provide more confidence in the trading signals.