Hull MA Chimp Forex Trading Strategy

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Hull MA Chimp Forex Trading Strategy

“He will win who knows when to fight and when not to fight.” – Sun Tzu

One of the reasons why many traders lose money trading the forex markets is because they do not know how to choose their battles. Many new traders would trade any move that they find, spam a strategy in any market, or trade on any market that is presented to them. This is just a recipe for disaster.

The very first thing I do when I trade is to decipher the direction of all the currencies and all the pairs. This will give me an idea which market is trending, which market is ranging, which market has the risk of reversing, and which direction each currency pair should be traded if ever I chose to trade such pair. With that said, although I could trade on ranging markets, I would always choose trading on trending markets rather than ranging markets. I would avoid trading on ranging markets as much as possible.

It is not that ranging markets are impossible to trade, it is just that I find it easier to trade on trending markets. For those who watch sports, it is like having a team that is playing on their homecourt. Having the trend in your favor is like having the crowd behind you. It is an advantage, or in trading, it is an edge.

Hull MA Chimp Forex Trading Strategy is a trend following strategy that produces consistent profits when used in a trending market. Traders could take trades with a high degree of confidence that price is more likely to move in their favor. It uses a combination of complementary indicators that synergize well to provide high probability entries over the short-term.

Hull Moving Average

The Hull Moving Average (HMA), developed by Alan Hull, is a technical indicator based on the classic moving average.

It is a modified moving average which is aimed at eliminating lag and smoothening the movement of the moving average. Although the two characteristics of a moving average are quite on the opposites, the Hull Moving Average has managed to find a good balance between the two. The result is a moving average line that is very responsive yet at the same time is very smooth.

This indicator also has an added feature to help traders identify short-term trend reversals. It changes color depending on the direction of the trend. In this setup, a green HMA line indicates a bullish short-term trend while a violet HMA line indicates a bearish short-term trend.

The Hull Moving Average is a good moving average indicator for identifying trend direction as well as trend reversals on the short-term. It could be used as trend direction filter based on the slope of the moving average. It could also be used as an entry signal based on the changing of the color of the HMA line.

Chimp Indicator

The Chimp indicator is a custom technical indicator that help traders identify the short-term momentum of price movements.

It is an oscillator that ranges from -1 to 1. It also has markers on level -0.3 and 0.3, as well as -0.6 and 0.6. Positive bars generally indicate a bullish short-term momentum, while negative bars indicate a bearish short-term momentum. Bars breaching beyond the -0.3 and 0.3 range confirms the bearish or bullish momentum indication. On the other hand, bars breaching the -0.6 and 0.6 range indicates a probable overbought or oversold condition on the short-term.

The bars also change color depending on the direction of the trend. In this setup lime bars indicate a bullish momentum, while red bars indicate a bearish momentum.

Trading Strategy

This trading strategy is a trend following strategy that produces trades on short-term pulses in the direction of the trend. This allows traders to take a quick trade going in and out of the market as long as the market is trending.

To trade this strategy, we will first be filtering for trend direction. This will be based on the slope of the 50-period Simple Moving Average (SMA). We should also observe if price is generally staying on one side of the 50 SMA line and is pulsing in the direction of the trend after each retracement. We then confirm the trend direction by visually looking at price action if it is constantly making higher highs and lows in the case of an uptrend, or lower highs and lows in the case of a downtrend. Trades should only be taken in the direction of the trend.

The next step is to identify the short-term pulses. To do this, we will look for confluences of the HMA line signal and the Chimp indicator. The signal from the HMA line will be based on the changing of the color of the line. The same trigger will be used on the Chimp indicator. Signals are produced as the color of the bars change, which indicates that the momentum is reversing.

Indicators:

  • 50 SMA (Green)
  • hull-moving-average (default setting)
  • DMX (default setting)

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

Currency Pairs: major and minor pairs

Trading Sessions: Tokyo, London and New York sessions

Buy Trade Setup

Entry

  • Price should generally stay above the 50 SMA line.
  • The 50 SMA line should be sloping up.
  • Price should be constantly making higher swing high and swing lows.
  • The HMA line should change to green.
  • The Chimp oscillator bars should change to lime.
  • Enter a buy order on the confirmation of these conditions.

Stop Loss

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

Exit

  • Close the trade as soon as the HMA line changes to violet.

Hull MA Chimp Forex Trading Strategy

Hull MA Chimp Forex Trading Strategy 2

Sell Trade Setup

Entry

  • Price should generally stay below the 50 SMA line.
  • The 50 SMA line should be sloping down.
  • Price should be constantly making lower swing high and swing lows.
  • The HMA line should change to violet.
  • The Chimp oscillator bars should change to red.
  • Enter a sell order on the confirmation of these conditions.

Stop Loss

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

Exit

  • Close the trade as soon as the HMA line changes to green.

Hull MA Chimp Forex Trading Strategy 3

Hull MA Chimp Forex Trading Strategy 4

Conclusion

This trading strategy works well when applied on a trending market condition with well defined retracements and pulses towards the direction of the trend. Since most pulses do not usually create big moves, this strategy should not be used with the mindset of aiming for the jackpot. Instead, it should be used with the goal of taking small profits consistently.

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