Belkhayate’s Center of Gravity indicator
The Center of gravity trading indicator is part of a trading system created by El Mostafa Belkhayate. Belkhayate was the winner of the Paris Salon AY Technical Analyst in 2009. He was also the silver winner of the trophy in 2010.
Belkhayate, besides being a trade is the founder of the Belkhayate Asset management. The asset management company is a swiss based company that specializes in commodities trading and offers market making, risk management and financing.
Not much of information is available on how Belkhayate’s Ceter of gravity indicator works.
It should be important to note that the center of gravity system developed by Belkhayate should not be confused by another indicator with the same name created by John Ehlers in 2002. Ehler’s center of gravity indicator is basically an oscillator that is used to pick turning points in price during a sideways range.
On the other hand, Belkhayate’s center of gravity system is an indicator that is comprised of parabolic lines and is plotted on the chart.
The first chart below shows an example of the Belkhayate’s center of gravity indicator.
In figure 1, you can see the indicator displayed on the chart. The main blue line is the center of gravity indicator. The space between the green and the orange lines represents the buying and selling area.
Belkhayate’s center of gravity indicator is said to be based on a polynomial non-parametric regression method to calculate the center of gravity. After the center of gravity line is derived, the outer green lines are based on the Fibonacci’s 1.618 amplitude while they are formed 2 and 3 standard deviations from the main line.
There is not much of information on the settings configuration for the center of gravity indicator. The only visible settings are the bars_back setting. This basically sets the duration of the number of bars to look back.
The default setting is 125. This means that the center of gravity indicator looks back on the past 125 bars.
The kstd is basically the standard deviation levels. The default setting is 2, but you could change it to 3 or more. However, bear in mind that the standard setting of 2 is sufficient as volatility is not that high to push the price action to the highs of a 3 standard deviation.
Finally, the twoDefault is the level that you need to use to change the sensitivity of the indicator. The default setting is 2. When it is changed to a higher value, the indicator tends to be more smooth, while the default value is set to 1, the indicator’s setting is more sensitive to price.
How to trade with the center of gravity indicator?
The first step is to look for the direction of the COG indicator. For example, if the COG indicator is pointing upwards, then look only for buy or long positions. Likewise, if the COG indicator is pointing downwards, then look only for sell positions.
You can also build your own market context and identify the trend on the timeframe you are looking at. If you see that the trend is down and that the COG indicator is also signaling this same trend by the direction of the indicator itself.
Some traders also look at multiple time frame analysis. In this scenario, if the COG is pointing upwards on the H4 time frame, then traders can look to the H1 time frame. On the H1, wait until the COG also points upwards (after the correction is completed).
Following this, you can then trade in the direction of the H4 COG indicator. By doing so, you would be able to pick turning points in price correction and trade with the larger time frame in question. This can help you to maximize the profits.Take profit levels
The take profit rules are simple. Using the center of gravity indicator, you can set the take profit at the blue line which is the dynamic center of gravity line. Most of the times, however, price tends to overrun the dynamic center of gravity line. Therefore, one way to trade is to look at splitting your positions.
Alternately, you can use trailing stops to help lock in profits.Stop loss levels
The Center of Gravity (COG) system uses the pivot levels (above and below) the dynamic center of gravity line, which is also the entry line. The stop loss levels can be set on a basis of 1:2 at the very minimum.
You can look at the possible critical levels using other indicators such as the pivot points, the support and resistance levels and so on. You can also look to the price action itself and place your stop loss levels at or close to the key swing points in price.
Trading examples – Center of gravity
The next chart below shows the center of gravity indicator on the price chart. As you can see, the indicator is sloping downward, indicating that the trend is down.
When price approaches the outer green line, a sell position can be taken. In figure 3, you can see the red, black and green horizontal lines. These lines are plotted based on the levels depicted with the center of gravity indicator.
A short position is taken when price reaches the outer green line. The stops are placed initially at the most recent highs seen on the left. The target is then set to the blue center of gravity line.
While this position can be traded in isolation, we can also look at the multiple time frame analysis.
The next chart shows the daily time frame with the center of gravity indicator. You can see that the daily trend is also down. Most recently, price tested the green line before pushing lower. As a result, we can now re-adjust the short positions.
The dotted lines represent the levels from the 30-minute time frame, while the bold lines now represent the entry, stops and target levels from the daily chart time frame.
From the above chart you can see how the trading signals can be maximized based on the center of gravity indicator.
In conclusion, the center of gravity indicator is a technical indicator that plots on the price chart. Developed by Mostafa Belkhayate, the center of gravity indicator works on the premise of reversion to the mean.
Price action constantly tends to gravitate towards the blue line which is the center of gravity. Using this simple but sophisticated indicator, one can trade the forex markets easily.