HAMA Trend Re-Entry Forex Trading Strategy

There are times when market momentum would suddenly explode causing price to push strongly in one direction and start a trend. Traders who are not in the trade and are in the sidelines often drool with envy thinking to themselves, “If only I was able to take that trade.”

We all have experienced this. In fact, day traders experience this often because this kind of scenarios happen multiple times in a week and often on multiple currency pairs. We are torn between taking the trade thinking that it might continue further and avoiding chasing price.

However, there is a way to enter such trades without chasing price. The market often gives a second chance for traders who were not able to enter such profitable trading opportunities.

The HAMA Trend Re-Entry Forex Trading Strategy allows traders to enter the market after a strong momentum price movement.

HAMA Indicator

HAMA basically stands for Heiken Ashi Moving Average. This indicator is a custom indicator which combines the concept of the Heiken Ashi Candlesticks and a moving average.

The HAMA indicator shares many similarities with the Heiken Ashi Smoothed indicator. If you would observe it closely, it moves in the same manner as the Heiken Ashi Smoothed indicator. It also gives accurate trend indications and also has very few false signals. One noticeable difference is that it has no wicks and is plotted only with bars, while the Heiken Ashi Smoothed indicator typically has wicks.

The HAMA indicator plots blue bars on the price chart indicating an uptrend, and red bars to indicate a downtrend.

LWMA Crossover Signal

LWMA Crossover Signal is a custom technical indicator which provides entry signals based on the crossover of moving averages.

This indicator uses Linear Weighted Moving Averages (LWMA) to identify trend reversals. This type of moving average puts more weight on recent price movements compared to older price points. This creates a moving average line that is very responsive and has less lag.

Because this indicator uses the LWMA line as its basis for a trend reversal, the signals it provides is also very timely. It has less lag compared to other moving average signals and is very responsive to sudden short-term trend changes.

Trading Strategy

This strategy is intended to be used as a re-entry strategy after a strong momentum price move. As such, this strategy should only be used during fresh strong trends. These are trends which have just recently started caused by momentum and still has not retraced. You could use this strategy to enter the market without chasing price as soon as you observe such scenarios on the price chart.

We will be using the HAMA indicator to identify the trend. This will be based on the color of the HAMA bars.

We will wait for the initial momentum price movement to fizzle out causing price to retrace towards the HAMA bars. The color of the bars should remain the same even with the retracement.

This retracement could temporarily cause the LWMA Crossover Signal indicator to produce a signal against the trend. A trade is then considered as soon as the LWMA Crossover Signal indicator plots an arrow pointing the direction in line with the trend.

Indicators:

• HAMA(default setting)
• LWMA-Crossover_Signal (default setting)

Preferred Time Frames: 15-minute, 30-minute, 1-hour, 4-hour and daily charts

Currency Pairs: major and minor pairs

Trading Sessions: Tokyo, London and New York sessions

Buy Trade Setup

Entry

• A strong bullish momentum price move should occur.
• The momentum price move should create a bullish trend.
• The HAMA bars should be blue.
• Price should retrace towards the HAMA bars.
• Enter a buy order as soon as the LWMA Crossover Signal indicator prints an arrow pointing up.

Stop Loss

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

Exit

• Close the trade as soon as the LWMA Crossover Signal indicator prints an arrow pointing down.

Sell Trade Setup

Entry

• A strong bearish momentum price move should occur.
• The momentum price move should create a bearish trend.
• The HAMA bars should be red.
• Price should retrace towards the HAMA bars.
• Enter a sell order as soon as the LWMA Crossover Signal indicator prints an arrow pointing down.

Stop Loss

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

Exit

• Close the trade as soon as the LWMA Crossover Signal indicator prints an arrow pointing up.

Conclusion

This trading strategy is a working trading strategy intended for entering a market that has already pushed strongly with momentum. This gives traders an opportunity profit from the second price push after the initial momentum move.

This strategy could produce huge returns when held until the end of the trend. However, if used in a slow chugging market, this strategy could produce small profits and some small losses.

When using this strategy, another exit strategy option would be to use a Take Profit target price. However, because this is often used during a trending market, it is often difficult to pinpoint where the next support or resistance line is. One good option would be to set a take profit target using a multiple of the risk on the stop loss.

If used right, this strategy could produce consistent profits over time.

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