The Larry Williams proxy index

His Proxy Index is one of the indicators to which Larry Williams pays the most attention. It is an oscillator, which identifies trend reversal zones. Although the indicator can be used for swing trading, it is most commonly used in day trading.

The L.W. Proxy Index is an oscillator. The oscillator is visible below the main chart. As in every oscillator there are two key levels: the upper limit and the lower limit.

This example shows the Proxy Index just below the lower limit for the DOW future. Given that the trend is bearish (red background in the main chart); a short sell position can be sold.

The upper and lower limits of the Proxy Index vary from instrument to instrument. They also vary depending on the main market trend.

Tip: when setting the parameters in trading strategies, always open the equity chart. You can immediately see the impact your changes have on the strategy’s result.

This example shows the DOW future. The upper and lower limits of the Proxy Index are set to a simple +5/-5. The result is initially negative and later positive.

It is possible, however to get a better result. The main market trend is bullish. The DOW goes up, sideways and up again. Traders follow the trend. This means we should (1) indicate a preference for buy signals by putting the upper limit close and (2) eliminate some short sell signals, unless they are really favourable, by putting the lower limit very low.

This example shows the same horizon on the DOW future but with the upper and lower limits set to +2/-10. Notice the diminution in short sell signals. The equity chart improved significantly.

The Proxy Index is also available in the NanoTrader as part of a complete trading strategy.