Chandelier Trend Forex Trading Strategy

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Chandelier Trend Forex Trading Strategy

“Confirmation is key!”

As traders, we often experience taking trades thinking that a signal is strong enough only to find out that the trade setup was a false signal. At times it is just part of the statistics. That losing trade might just be one of those setups that would cause you to lose money because all the rules are ticked, and the setup seems so enticing. With these types of scenarios, it is best to forget about it and carry on. However, there are also cases wherein such bad trades could have been avoided. But how?

Again, “Confirmation is key!”

Some trade setups are taken haphazardly purely based on a single low probability entry signal. However, if you would look closely, you would realize that such trade setups could have been improved by waiting for a confirmation or using a secondary filter or trigger that would validate such trade.

Chandelier Trend Forex Trading Strategy uses a confirmation of a trend reversal which is common knowledge to many seasoned traders but is often neglected. This dramatically increases the win rate of the strategy especially when used in the right market condition.

Chandelier Exit

Chandelier Exit is a trend-following indicator which is based on volatility. This indicator is derived from the Average True Range (ATR) indicator. It computes for a multiple of the current ATR and bases its identification of the trend on the direction which price has recently breached.

Many traders use the ATR to identify trend reversals. Some believe that if price reverses from the mean by a certain multiple of the ATR, then it could be considered as a trend reversal. The developer of Chandelier Exit used this concept to develop the indicator.

Chandelier Exit plots a line that follows price movements by a certain distance based on the ATR. If the market is in an uptrend, the line is plotted below price. If the market is in a downtrend, then the line shifts above price. In this setup, the color of the line also changes based on the direction of the trend. Orange lines represent an uptrend, while magenta lines represent a downtrend.

The line could be used as a stop loss placement tool. Traders could place the stop loss beyond the line, away from price. If price crosses the line, then it could be considered a trend reversal thus nullifying the trade.

The line could also be used as an entry trigger. Because the line shifts only when the trend reverses, traders could take the shifts as a trend reversal entry signal.

Relative Strength Index

The Relative Strength Index (RSI) is a classic technical indicator used by many traders to identify momentum, trend and mean reversals.

It is an oscillator which plots a line from 0 to 100. Lines that are above 50 is indicative of a bullish bias, while lines that fall below 50 could indicate a bearish bias.

On the extreme, if a line breaches above 70, price could be considered overbought. If the line drops below 30, price could be considered oversold. These conditions are prime conditions for a possible trend reversal.

Although the 50 line is commonly used as the basis for trend bias, seasoned traders use the 45 and 55 mark as a confirmation of a trend. Trends are considered to have reversed to the upside if the line breaches above 55, or to the downside if the line drops below 45. Trends could also be further confirmed if the line retests the opposite line and the line acts as a support or resistance level for the RSI.

Trading Strategy

This strategy is a simple trading strategy which uses the confluence of trend reversal signals coming from the RSI and the Chandelier Exit indicator.

On the Chandelier Exit indicator, entry signals will be based purely on the shifting of the line. However, these signals should not be taken as it is. The trend reversal should still be confirmed.

The RSI indicator will be used as the confirmation for the trend reversal. The RSI line should cross above 55 in an uptrend, or below 45 in a downtrend. Trades are taken only when these conditions are met.

Trades are kept open if the trend is still valid. The stop loss should be trailed behind the Chandelier Exit line.

Indicators:

  • Chandelier Exit
    • Range: 14
    • ATR Period: 18
  • RSI
    • Period: 24

Preferred Time Frames: 30-minute, 1-hour and 4-hour charts

Currency Pairs: majors, minors and FX crosses

Trading Sessions: Tokyo, London and New York sessions

Buy Trade Setup

Entry

  • The Chandelier Exit line should shift below price and change to orange.
  • The RSI line should cross above 55.
  • Price action should be bullish.
  • Enter a buy order on the confirmation of these conditions.

Stop Loss

  • Set the stop loss below the Chandelier Exit line.

Exit

  • Close the trade as soon as price closes below the Chandelier Exit line.

Chandelier Trend Forex Trading Strategy

Chandelier Trend Forex Trading Strategy 2

Sell Trade Setup

Entry

  • The Chandelier Exit line should shift above price and change to magenta.
  • The RSI line should cross below 45.
  • Price action should be bearish.
  • Enter a sell order on the confirmation of these conditions.

Stop Loss

  • Set the stop loss above the Chandelier Exit line.

Exit

  • Close the trade as soon as price closes above the Chandelier Exit line.

Chandelier Trend Forex Trading Strategy 3

Chandelier Trend Forex Trading Strategy 4

Conclusion

This trading strategy is an excellent trend reversal strategy. This is because it incorporates the one thing that many trend reversal strategies miss out, which is confirmation.

There are many ways to confirm a trend reversal. Using the 45 and 55 mark on the RSI is just one. Another way would be to wait for a retracement and a close beyond the swing high or low of the trend reversal. This would usually be a more reliable confirmation but could also decrease the yields of a trade. Other traders use price action as price retraces. This is also a viable way to confirm a trend reversal, but requires practice as not all traders could identify a strong price action signal.

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