As any forex trader worth their salt knows, there are a bewildering number of indicators out there to choose from – which is why you need a quick and handy overview to give you the lowdown.
Introducing the SSL Channel Chart Alert Indicator
Popularly known as the SSL, the Semaphore Signal Level Channel Chart Alert (can you see why everyone knows it by a shorter name?) is an indicator that combines moving averages to provide you with a clear visual signal for dynamics in price movement. In short, it seeks to show you when trends in the price emerge.
It does this by showing you two different-coloured lines that appear on your chart and track price movements. We say they appear on your chart because in most iterations this indicator is overlaid onto your chart, though there are off-chart versions available too. This is really down to your own preferences as a trader – would you rather your chart be clean and simple and have your indicators appearing separately in another window or do you like everything to be displayed in one place, making it easier to cross-reference? There is another thing to factor in here, which is whether you can find a good off-chart SSL. It has been primarily designed as an overlay indicator so if you do opt for an off-chart version, it goes without saying that you should make sure that it works as advertised.
When the two lines intersect, the indicator is signaling that the price movement is changing direction or is about to change direction (from long to short or from short to long). When setting up the SSL on your platform, you will have an opportunity to choose the colour of the two lines – make sure you select colours that make sense to you and don’t clash with anything else you have set up on your chart. Having a cluttered chart can be distracting enough without also having to squint to see colours that are too similar to one another or that clash in some other way.
Another thing to bear in mind when setting up the SSL is that it will have some alerts built-in – it is, after all, called the SSL Channel Chart Alert. Now, it depends a little on how you like to trade but our recommendation is that you turn these alerts off – especially until you have a good sense of how the indicator works and what you want to use it for. There is another reason why switching the alerts off is probably a good idea. And that’s the fact that the indicator might give you false signals as the price teeters back and forth before a candle closes. This would probably result in you getting alerts popping up before you can really use them and also could be confusing and even misleading. Plenty of technical traders who make heavy use of indicators will advise that you wait until a candle has closed before taking a reading or signal from your indicator and this applies just as much to the SSL as to other indicators.
Quick and Simple SSL Strategy
Ok, so the SSL is doing its darndest to show you trends in the price movement but when it gets down to it, how do you actually use it?
Well, first things first, as with any indicator you are considering using as part of your trading system, you are going to want to run this one through a pretty robust testing regimen that includes both backtesting and forward testing through a demo account. And what you will discover when you run the SSL through testing is that here and there it picks out some pretty juicy price trends. Remember, when the two lines intersect, the SSL is telling you that the price movement is changing direction and you can use this as an entry signal if you are confident that this change of direction – or reversal, for want of a better term – is likely to develop into a trend.
But – there’s always a but isn’t there – the other thing you will notice is that the SSL will also lead you down some blind alleys that would result in losses if you traded on them. You’ll notice this particularly when the market is ranging or going sideways, where the SSL will pick out changes in direction that don’t develop into trends.
Now, there’s a chance that in your testing process you will find that these losses are outweighed by the gains made when the SSL does successfully pick out a trend. Nevertheless, you will still want to minimise those losses and the way to do that is to pair the SSL with a second indicator that will help you to eliminate at least some of those losses without also holding you back from getting in on the gains.
The best way to do this is to pair the SSL with a volume or volatility indicator and some strategies will also suggest using a momentum indicator. Examples of indicators the SSL is commonly paired with include the ATR, Force Index, Volume Oscillator, and the Stochastic. Whichever one you go for, the outcome you are looking for is for this second indicator to tell you whether a change in the price direction flagged by the SSL has the strength to turn into a price trend. All of these approaches have their various merits and choosing between them will depend on the indicators you are comfortable with and other aspects of your trading system.
So, how might a typical trade with the SSL look? Well, you will be on the lookout for the two SSL lines to converge and intersect, this will give you your initial signal that the price movement is changing direction and that a trend could emerge. At this crossover point you will want to check what your confirmation indicator is telling you – if, for example, there is an insufficient volume in the market at that point, you should hold back and avoid entering a trade. If, conversely, the volume is there to indicate there would be the strength behind the move, this is an entry signal. You may want to hold back until an extra bar completes before you enter a trade as this will additionally protect you against the price dithering or backtracking. Pairing the SSL with a good second indicator to filter out price movements that lack strength could halve the losses it would otherwise generate.
The SSL and Exit Signals
One other rather neat feature of the SSL is that it provides both entry and exit signals. As described above, you would enter a trade when the SSL lines cross over (assuming your other indicators confirm the trade signal) and that will hopefully take you into a nice price trend. Just as with the trade entry signal, the SSL lines will then again converge and intersect. As we know, this indicated that the price movement is about to change direction – if you are in a trade, this neatly provides you with an exit signal.
In a sense, if you do end up using the SSL, it kind of ties you into using it both to enter and exit trades. But this doesn’t have to be a bad thing at all. As you will see if you run it through your testing ground, the SSL has the potential to take you into some nice trends and, assuming you are sticking to the system as you design it, you should be able to ride those to grab gains that outweigh the smaller losses that it will also throw up from time to time.
The SSL can be used as a combined entry and exit indicator that will lead you to trends in price movements and, if properly paired with a secondary confirmation indicator, can help you to take advantage of those trends. When the market is not trending, the SSL will definitely throw out false signals that could lead you to losses but these can be mitigated by using it in conjunction with a good volume or volatility indicator.
Even if you don’t end up using it as part of your system, the SSL is a great little learning tool. Just taking it for a test-run and seeing which other indicators it pairs well with can help you to develop as a trader. What’s more, it is a useful asset to have around and once you start tweaking it, adjusting the settings, and playing around with combinations of secondary indicators, you might find that this is an indicator that has some real value to it.