Arrows and Curves RSI Trend Forex Trading Strategy

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Arrows and Curves RSI Trend Forex Trading Strategy

Trend reversal strategies are a viable way to earn consistent profits from the forex market over the long run. It offers traders the opportunity to win big in a single trade. Trend reversal strategies are the type of strategies that could produce huge risk-reward ratios in a single trade. This is because trend reversal strategies produce trade setups that attempt to catch a trade as it reverses while hoping to exit the trade near the end of the trend. Open ended trend reversal trade setups allow traders to have unlimited profit potential while at the same time limiting the risk to a certain amount.

However, trend reversals could be difficult to anticipate. This is because at the end of a trend, the market may consolidate, reverse or continue for another thrust. In other words, reversal is just one of a few possible scenarios.

Trend reversal traders who could turn in huge profits to cover the few losses every now and then plus some more could turn in a consistent positive return at the end of a trading period. Trend reversal traders who could increase their win rate while maintaining the unlimited earning potential of a trend reversal setup could earn even higher returns.

In this strategy, we will examine the combination of two high probability indications that could help traders earn higher yields with consistency using a trend reversal strategy.

Arrows and Curves

Arrows and Curves is a custom technical indicator which produces momentum-based signals.

This indicator plots a channel around price action based on the price extremes of the recent price movements. It plots a line above and below price action enveloping price action, forming the channel like structure.

It then detects strong momentum based on price action pushing strongly and closing beyond the range of the channel against the prior momentum indication. It then plots an arrow pointing the direction of the momentum reversal based on this.

A bullish momentum is indicated by a blue arrow pointing up, while a bearish momentum is indicated by a red arrow pointing down. Traders can use these arrows as an entry signal based on momentum reversals.

Relative Strength Index

The Relative Strength Index (RSI) is a widely used technical indicator. It is a versatile oscillator which can help traders identify trend, momentum and mean reversals.

The RSI plots a line which oscillates within the range of 0 to 100, based on recent price movements. As such, its midline is at 50, which typically has a marker. An RSI line which is generally above 50 indicates a bullish trend bias, while an RSI line which generally below 50 indicates a bearish trend bias.

It also typically has a marker at levels 30 and 70. An RSI line below 30 could indicate an oversold market condition, while an RSI line above 70 could indicate an overbought market condition. Both these conditions are prime for a mean reversal.

On the other hand, momentum traders may also identify an RSI line breaching above 70 as an indication of a bullish momentum, while an RSI line dropping below 30 as an indication of a bearish momentum.

The key in identifying momentum and a mean reversal could be based on the characteristics of price action as the RSI line breaches these levels.

Many traders also add levels 45 and 55 to identify trends. An RSI line crossing above 55 could be used to confirm a bullish trend reversal, while an RSI line crossing below 45 could be used to identify a bearish trend reversal. Inversely, level 45 also acts as a support level for RSI in a bullish trend, while level 55 also acts as a resistance level for RSI in a bearish trend.

Trading Strategy

Arrows and Curves RSI Trend Forex Trading Strategy is a simple trend reversal strategy which trades based on the confluence of a momentum reversal signal coming from the Arrows and Curves indicator, and the trend reversal signal coming from the RSI.

The Arrows and Curves indicator produces the first signal based on a momentum reversal. The signals are based on the arrows plotted by the indicator.

The RSI should then confirm that the momentum reversal is indeed developing as a full-blown trend reversal. This is based on the RSI line crossing either level 45 or 55 depending on the direction of the reversal. If the trend continues, the same levels should act as a support or resistance level depending on the direction of the trend.

Indicators:

  • ArrowsAndCurves
  • Relative Strength Index

Preferred Time Frames: 4-hour and daily charts (swing trading setups)

Currency Pairs: FX majors, minors and crosses

Trading Sessions: Tokyo, London and New York sessions

Buy Trade Setup

Entry

  • The Arrows and Curves indicator should plot an arrow pointing up.
  • The RSI line should breach above 55.
  • Enter a buy order on the confirmation of these conditions.

Stop Loss

  • Set the stop loss on the support level below the entry candle.

Exit

  • Close the trade as soon as the Arrows and Curves indicator plots an arrow pointing down.

Arrows and Curves RSI Trend Forex Trading Strategy

Arrows and Curves RSI Trend Forex Trading Strategy 2

Sell Trade Setup

Entry

  • The Arrows and Curves indicator should plot an arrow pointing down.
  • The RSI line should drop below 45.
  • Enter a sell order on the confirmation of these conditions.

Stop Loss

  • Set the stop loss on the resistance level above the entry candle.

Exit

  • Close the trade as soon as the Arrows and Curves indicator plots an arrow pointing up.

Arrows and Curves RSI Trend Forex Trading Strategy 3

Arrows and Curves RSI Trend Forex Trading Strategy 4

Conclusion

This trading strategy is a simple trend reversal strategy which makes use of two high probability reversal indications. The Arrows and Curves being a reversal based on momentum, while the RSI being a trend reversal indication based on an oscillator.

The two indicators act as supplementary indicators which can produce high probability trade setups compared to most trend reversal setups.

There will be times when minor losses would be incurred using this strategy. There will also be times when price would not push through long enough on a trend resulting in a small win. However, there would also be scenarios wherein the momentum reversal would result in a long trend. These trends produce high returns which should help traders become consistently profitable over the long run.

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