TSO Thermostat Strategy is an indicator that can adapt to the current market conditions by switching from a trend-following mode to a short-term swing mode, thus providing the best possible entry/exit signals in any situation. It is based on the Thermostat Trading Strategy as presented in the book Building Winning Trading Systems with TradeStationby G. Pruitt and J. R. Hill.

Strategy

The Thermostat Strategy uses different entry and exit conditions based on the current situation of the market - trending or swinging. The Choppy Market Index (CMI) is used to detect the current market mode. A CMI of less than 20 indicates a swinging market, whereas a value of 20 and above indicates a trending market.

CMI is not fully drawn on he graph. The two lines of the Bollinger Bands have been colour-coded to show whether the price is below (white) or above (purple) the CMI threshold level.

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