Fisher Channel Momentum Forex Trading Strategy

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Fisher Channel Momentum Forex Trading Strategy 1

Channel and band-based technical indicators are some of the most underrated indicators for trend-following and momentum trading.

Often, traders would associate channels and bands as a dynamic support and resistance with an overbought or oversold line. Many traders would use it for mean reversal strategies, trading on price rejection of an overbought or oversold market condition. While this is also a viable way to use channel indicators, there are also other ways in which the indicator could be used.

One of the ways that bands and channels could be used intelligently is as a confirmation of momentum. Traders should remember that indicators follow price, not the other way around. If price is moving with strong momentum, even channel indicators could not cause it to reverse. Instead, the channels would be playing catch up with price. This would cause price to be trading outside of the channels. Such conditions are indicative of a strong momentum and is a prime trading strategy.

Fisher Channel Momentum Forex Trading Strategy is a strategy that produces trade signals based on momentum which is confirmed by price trading outside of a channel indicator. It makes use of only two indicators – a channel-based indicator and a trend following indicator.

EMA Trend Indicator

The EMA Trend Indicator is a momentum indicator based on the Exponential Moving Average (EMA).

The indicator uses two moving average lines, a 21-period Exponential Moving Average (EMA) and a 34-period Exponential Moving Average (EMA). Two other lines are then derived from the two moving average lines.

When combined, the lines form a channel. During an uptrend, the purple lines become the outer lines of the channel. During a downtrend, the yellow lines become the outer bands of the channel.

FBS Fisher

The FBS Fisher indicator is an oscillating indicator based on a statistical normal distribution. It is derived from historical price movements, transfiguring price into a Gaussian normal distribution.

The FBS Fisher indicator displays trend direction by printing histogram bars. Positive bars generally indicate a bullish trend, while negative bars indicate a bearish trend.

The bars also change colors based on its length compared to the previous bar. Bars that are longer compared to the previous bar are colored gold. This indicates a strengthening trend. On a bullish trending market condition, bars that are shorter than the previous bar are colored red, while on a bearish trending condition, bars that are shorter than the previous bar are colored lime.

Trading Strategy

This trading strategy trades on momentum candles that are confirmed to be with a strong momentum using the EMA Trend Indicator, and that are in confluence with the trend direction based on the FBS Fisher indicator.

To classify as a momentum candle, the entry candle should be a long, big-bodied candle, with small wicks.

The EMA Trend Indicator acts as a filter for momentum. To identify momentum, the color of the outer bands should conform with the direction of the trend. Price should be trading outside of the channel on the side where the trend is.

The FBS Fisher indicator will serve as the trend direction filter. Trades should be taken in the direction of the trend based on whether the FBS Fisher indicator is positive or negative.

The FBS Fisher would also be used as an exit trigger. Trades are closed whenever the FBS Fisher indicator would reverse. This would allow us to exit the trade earlier, prior to the actual reversal of the trend based on price action.

Indicators:

  • FBS Fisher (default setting)
  • EMA Trend Indicator (default setting)

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

Currency Pairs: major and minor pairs

Trading Session: Tokyo, London and New York sessions

Buy Trade Setup

Entry

  • The FBS Fisher indicator should be printing positive bars.
  • On the EMA Trend Indicator, the purple lines should be on the outside of the yellow lines.
  • Price should be trading above the EMA Trend Indicator channel.
  • A bullish momentum candle should be observed on the chart.
  • Enter a buy order on the confirmation of the conditions above.

Stop Loss

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

Exit

  • Close the trade as soon as the FBS Fisher bars become negative.

Fisher Channel Momentum Forex Trading Strategy 1

Fisher Channel Momentum Forex Trading Strategy 2

Sell Trade Setup

Entry

  • The FBS Fisher indicator should be printing negative bars.
  • On the EMA Trend Indicator, the yellow lines should be on the outside of the purple lines.
  • Price should be trading below the EMA Trend Indicator channel.
  • A bearish momentum candle should be observed on the chart.
  • Enter a sell order on the confirmation of the conditions above.

Stop Loss

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

Exit

  • Close the trade as soon as the FBS Fisher bars become positive.

Fisher Channel Momentum Forex Trading Strategy 3

Fisher Channel Momentum Forex Trading Strategy 4

Conclusion

Trading on momentum price movements based on this channel indicator is a good way to trade the market.

The key to trading this strategy profitably is by looking for confirmed momentum movements. This tends to produce a higher degree of success compared to most momentum setups.

Confluences also increase the likelihood of a profitable trade. Trading on multiple indications and confirmations of the trend direction tend to produce high probability trade setups.

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