Filter Slope Forex Trading Strategy

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Filter Slope Forex Trading Strategy

Many traders are first drawn to the forex market because of the perceived ease of making money. However, most would discover that it is not as easy as it seems. Many traders would find themselves losing money more often rather than earning a profit out of forex trading. The few who make it, those who become consistently profitable, are those who are able to earn a fortune by trading in the forex market.

So, why is it that many traders find it difficult to be profitable and there are those who seem to be earning profits quite easily. There could be many reasons. However, one probable difference between the two camps is that one chooses to trade in any market all the time, while the other chooses to trade in market conditions which are familiar to them and preferably are relatively easier to trade. Most profitable traders know how to choose their battles. They know the type of market their strategies would work best and they trade only in such market conditions.

Trending markets are probably the easiest markets to trade in. Much like the bitcoin boom when the bitcoin market was basically in a strong uptrend, traders simply place a buy trade and wait for price to go up. The same thing happens in a trending forex market. Traders could simply take a trade in the direction of the trend and it should be profitable most of the time. But it is not that simple. While the question of “which direction to trade” was answered, traders still have to answer the second question, which is “when to trade”.

Filter Slope Forex Trading Strategy is a trend following strategy that helps traders identify a trending market and time market entries precisely. It makes use of one main trend-following indicator and a couple of moving average lines to complete the trade setup.

B Bands Stop Indicator

B Bands Stop is a trend following technical indicator mainly used to identify trend direction. It is a custom indicator based on the Bollinger Bands.

The indicator basically identifies trend direction based on a momentum indication coming from a Bollinger Band. It then plots a line on the price chart away from price action to indicate trend direction. If the market is bullish, the indicator would plot the line below price action. On the other hand, if the market is bearish, the indicator would plot the line above price action.

The indicator has different parameters which traders can modify. Traders could choose the Length of the Bollinger Band used, the Standard Deviation, the Money Risk to set the distance from price action, and more.

B Bands Stop indicator could be used in several ways.

First, it could be used as a trend filter. Traders could use a different short-term momentum signal and trade only in the direction of the trend.

It could also be used as a trend reversal entry signal. Traders could take trades based on the shifting of the line which also indicates a trend reversal.

Lastly, the B Bands Stop indicator could also be used as a stop loss placement. Traders could take trades int the direction of the trend and place the stop loss beyond the its line, away from price action. Traders could then trail the stop loss to minimize risk or protect profits.

Trading Strategy

Filter Slope Forex Trading Strategy is a simple trend following strategy which filters trade direction based on the trend indicated by the B Bands Stop indicator and takes trades based on a simple short-term moving average crossover.

The B Bands Stop indicator will be used to filter trades based on the trend it indicates. If the line is below price action, we will only take buy trades since the market is considered to have a bullish bias. On the other hand, if the line is above price action, then we would only take sell trades based on the bearish bias of the market.

Aside from the B Bands Stop indicator, traders should also visually identify if the market is trending or not. This will be based on whether the swing highs and lows are making new highs or lows. As such, traders should also learn to identify trends based on price action. This will help us avoid trading in choppy non-trending markets.

Then, we take trades based on a crossover entry signal. The moving averages used in this setup is a 5-period Exponential Moving Average (SMA) represented by a gold line, and a 10-period Simple Moving Average (SMA) represented by a green line. Trades are taken in the direction of the trend as the moving averages crossover indicating the direction of the trend.

Indicators:

  • BBands_Stop_BO
    • Length: 32
    • Devioation: 2.0
    • Money Risk: 1.0
  • 5 EMA (gold line)
  • 10 SMA (green line)

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

Currency Pairs: FX majors, minors and crosses

Trading Sessions: Tokyo, London and New York sessions

Buy Trade Setup

Entry

  • Price action should be above the B Bands Stop line.
  • Price action should be making higher swing highs and swing lows.
  • Enter a buy order as soon as the 5 EMA line crosses above the 10 SMA line.

Stop Loss

  • Set the stop loss on the fractal below the entry candle.

Exit

  • Close the trade as soon as the 5 EMA line crosses below the 10 SMA line.

Filter Slope Forex Trading Strategy

Filter Slope Forex Trading Strategy 2

Sell Trade Setup

Entry

  • Price action should be below the B Bands Stop line.
  • Price action should be making lower swing highs and swing lows.
  • Enter a sell order as soon as the 5 EMA line crosses below the 10 SMA line.

Stop Loss

  • Set the stop loss on the fractal above the entry candle.

Exit

  • Close the trade as soon as the 5 EMA line crosses above the 10 SMA line.

Filter Slope Forex Trading Strategy 3

Filter Slope Forex Trading Strategy 4

Conclusion

This strategy is a high probability trading strategy because it trades on trending market conditions. Because trades are taken in the direction of the trend, most trades would have a relatively higher probability compared to other trade entries.

It also provides trade entries at better prices. This is because trade entries are taken as the market is ending a retracement phase and is resuming its current trend direction.

There could also be a small wins and losses here and there, but this strategy also has the potential to produce large gains.

Trade this strategy is a market that is trending and you could be consistently earning profits from the forex market.

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