Trading indicators are simply tools to help traders make sound trading decisions. Decent indicators should allow traders to have a good idea of where the general trend direction is. However, there are some indicators that are just head and shoulders above the rest. These indicators not only shows traders what the general trend direction is, but does so with consistency and accuracy. These types of indicators allow traders to build a high probability trading strategy around it.
The HAMA Indicator
HAMA stands for Heiken Ashi Moving Average. It is also popularly known as Heiken Ashi Smoothed.
The Heiken Ashi candles became popular lately and for good reasons. The Heiken Ashi candles clearly show the trend direction on the short-term. It does so with great accuracy, it works well as entry signals.
The Heiken Ashi Smoothed or HAMA indicator however is a bit different from the regular Heiken Ashi candles. The Heiken Ashi candles would clearly show the highs and lows of a candle, but would just change colors when the short-term trend has changed.
The Heiken Ashi Smoothed indicator however is not necessarily a candlestick. In fact, resembles more closely a moving average. This is because the Heiken Ashi Smoothed indicator is based on moving averages, the Exponential Moving Average to be exact. The difference is that it smoothens out the trend changes better and shows the direction of the trend based on the color of the candles.
If you would look at a chart with a Heiken Ashi Smoothed or HAMA indicator, you would notice how clearly it defines the trend and how accurate it is compared to most indicators.
Forex Profit Supreme Filter
The Forex Profit Supreme Filter is another custom indicator which indicates trend direction. It does this by painting bars on a separate window. For this setup, the indicator paints green bars for bullish trends and red bars for bearish trends.
This indicator is another high probability trend indicator. If you would observe it as a standalone indicator, you would notice how it seems to follow well trend direction. Whenever it is green, the market does seem to be bullish. Whenever it is red, the market seems to be trending down.
Trading Strategy Concept
The HAMA Supreme Forex Trading Strategy is based on the confluence of these two high probability trading indicators. These indicators are complimentary indicators, which does seem to indicate trend direction quite closely.
Individually, they work well as standalone indicators. However, when used together, these indicators work like a charm.
The key to this strategy is to trade signals of both indicators that are in confluence with each other and has changed color to indicate a reversal quite at the same time.
Indicators:
- HAMA_
- Forexprofitsupremefilter
Timeframe: 1-hour, 4-hour and daily charts
Currency Pairs: major and minor pairs
Trading Session: Tokyo, London and New York sessions
Buy (Long) Trade Setup
Entry
- The HAMA indicator should change to blue indicating a possible bullish trend reversal
- The Forex Profit Supreme Filter should change to green indicating a possible bullish trend reversal
- These trend changes should be somewhat aligned
- Enter a buy order at the confluence of the above conditions
Stop Loss
- Set the stop loss below the HAMA indicator
Exit
- Close the trade as soon as the HAMA indicator changes to red indicating a possible bearish reversal
- Close the trade as soon as the Forex Profit Supreme Filter changes to red indicating a possible bearish reversal
Sell (Short) Trade Setup
Entry
- The HAMA indicator should change to red indicating a possible bearish trend reversal
- The Forex Profit Supreme Filter should change to red indicating a possible bearish trend reversal
- These trend changes should be somewhat aligned
- Enter a sell order at the confluence of the above conditions
Stop Loss
- Set the stop loss above the HAMA indicator
Exit
- Close the trade as soon as the HAMA indicator changes to blue indicating a possible bullish reversal
- Close the trade as soon as the Forex Profit Supreme Filter changes to green indicating a possible bullish reversal
Conclusion
This strategy is a trend following strategy with a relatively higher probability compared to other trend following strategies.
Because the strategy is using the HAMA or Heiken Ashi Smoothed indicator, the probability of a successful trend reversal setup would be better. This is because the HAMA indicator on its own is already a high probability indicator. I even personally know of a trader that makes use of this indicator as an entry signal on his trading robot. This just shows how the HAMA is a profitable indicator even on its own.
Add to this strategy the confirmation of the Forex Profit Supreme Filter, we get to filter out trade setups that have a lower probability. We then end up with even higher probability setups.
This strategy however would work better if the trader has an understanding of supports and resistances. Entries based on this strategy that is in confluence with a bounce off a support or resistance usually works best.
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