Gann RSI Forex Trend Following Strategy

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Gann RSI Forex Trend Following Strategy

Trend trading is a good way to trade the forex markets. Trading with the trend means that you are trading with the general flow of the market. This greatly stacks the odds in your favor. This is probably the reason why many professional traders prefer to trade with the trend.

Although trend trading is a good way to trade the forex market, not all trends are the same. Some trends tend to be very strong while others have a slower pace. Some trends have shallow retracements while other trends retrace very deep. Different trends should be traded differently.

The Gann RSI Forex Trend Following Strategy is a trend following strategy that trades on strong trends with shallow retracements. It attempts to identify strong trends and trades it accordingly.

Relative Strength Index

The Relative Strength Index is a momentum oscillator that measures the speed of price movements.

The RSI is displayed as an oscillator with a line that could move between -100 and 100.

There are different ways traders use the RSI.

Trend and momentum traders often interpret an RSI line above 50 as an indication of an uptrend while an RSI line below 50 is considered as an indication of a downtrend. Other traders consider 40 as a viable support level for the RSI line during an uptrend and 60 as a viable resistance level for the RSI line during a downtrend.

Mean reversal traders on the other hand interpret an RSI line above 70 as an indication of an overbought market while an RSI line below 30 is interpreted as an indication of an oversold market.

Traders who trade on divergences on the other hand look for discrepancies between the peak and trough of price action and the RSI line. Any deviation between the two are considered as potential points of a trend reversal.

Gann HiLo Activator Bars

The Gann HiLo Activator Bars is a momentum indicator used to identify short-term trends.

It indicates the short-term trend by overlaying thin bars over the price candles. These bars change colors depending on the direction of the trend. In this chart setup, blue bars indicate a bullish short-term trend while red bars indicate a bearish short-term trend.

The Gann HiLo Activator Bars are great entry signal indicators as it could objectively point where the short-term trend has reversed. However, even though the Gann HiLo Activator Bars is a very accurate short-term indicator, it should still be used in conjunction with longer-term trend indicators.

Trading Strategy

This strategy trades on strong trends based on a few simple conditions.

Trend direction is identified based on a 50-period Simple Moving Average (SMA). First, trend direction is identified based on the location of price in relation to the 50 SMA. The trend is then confirmed based on the slope of the 50 SMA. A flat 50 SMA is indicative of a ranging or a weak trending market condition. Steep slopes with a good separation between price action and the 50 SMA is indicative of a strong trend.

Trend strength is then observed on the RSI. During an uptrend the RSI line should be staying above 50 indicating that the uptrend is strong. On the other hand, during a downtrend the RSI line should be staying below 50 indicating a strong downtrend.

The entry trigger is then based on the Gann HiLo Activator Bars. Even during a strong trend, the Gann HiLo Activator Bars would reverse during a retracement. However, despite the short reversal on the Gann HiLo Activator Bars, the conditions of a strong trend based on the 50 SMA and the RSI should be intact. If such conditions are met, the next reversal on the Gann HiLo Activator Bars could be taken as an entry.

Indicators:

  • 50 SMA
  • Gann HiLo activator bars (default settings)
  • Relative Strength Index

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

Currency Pairs: major and minor pairs

Trading Session: Tokyo, London and New York sessions

Buy Trade Setup

Entry

  • Price should be above the 50 SMA line.
  • The 50 SMA line should be sloping up indicating a bullish trend.
  • The RSI line should stay within the 50 – 90 range indicating a strong bullish trend.
  • Price should temporarily retrace causing the Gann HiLo Activator Bars to temporarily change to red.
  • Enter a buy order as soon as the Gann HiLo Activator Bars change to blue indicating the resumption of the trend.

Stop Loss

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

Exit

  • Close the trade as soon as the Gann HiLo Activator Bars change to red.
  • Close the trade as soon as the RSI line crosses below 50.

Gann RSI Forex Trend Following Strategy

Gann RSI Forex Trend Following Strategy 2

Sell Trade Setup

Entry

  • Price should be below the 50 SMA line.
  • The 50 SMA line should be sloping down indicating a bearish trend.
  • The RSI line should stay within the 10 – 50 range indicating a strong bearish trend.
  • Price should temporarily retrace causing the Gann HiLo Activator Bars to temporarily change to blue.
  • Enter a sell order as soon as the Gann HiLo Activator Bars change to red indicating the resumption of the trend.

Stop Loss

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

Exit

  • Close the trade as soon as the Gann HiLo Activator Bars change to blue.
  • Close the trade as soon as the RSI line crosses above 50.

Gann RSI Forex Trend Following Strategy 3

Gann RSI Forex Trend Following Strategy 4

Conclusion

This trading strategy is an excellent trading strategy that could produce huge gains quite easily.

Trades results could vary. Some trades would produce small gains, others would cause small losses. There are also times when price would reverse strongly causing price to hit the stop loss. On many occasions a trade would produce a fair 1:1 return on a risk for a trade. On some instances though, the short-term trend could last a little longer producing huge returns on a trade.

Technically, if done right, allowing price to trend and closing a trade only when the trend has ended should produce significant gains. However, this approach might not be for everyone as this could also cause occasional drawdowns. Some traders prefer setting a fixed take profit target. This could produce good results if set at a reasonable level. It is up to you as a trader to identify which approach best fits you.

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