MACD Kijun Tenkan Forex Day Trading Strategy

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MACD Kijun Tenkan Forex Day Trading Strategy

Trend reversals on the lower timeframes are one of the most profitable types of trading strategies when day trading. Yields coming from trend reversal trades are often big and in the long run, reward-risk ratios are usually very high. This makes most trend reversal strategies profitable.

There are many ways to trade trend reversals. Some traders use moving average crossover strategies, others trade using reversal price patterns, while others use breakouts of channels and diagonal supports and resistances.

Another way to trade trend reversals is with the use of trend based technical indicators. Most indicators tend to fail when used as a standalone indicator. However, when trend indicators are paired with a complementary indicator and trades are based on confluences, the probability of the trades taken dramatically improve.

This strategy is a trend reversal strategy which is based on the confluence of two high probability trend indicators.

Kijun Tenkan

The Kijun Tenkan indicator is a trend indicator which is based on the Ichimoku Kinko Hyo indicator or the Ichimoku Cloud.

The Ichimoku Kinko Hyo indicator is one of the few indicators that could produce good results even when used as a standalone indicator. It detects trend direction using multiple trend lines. It is composed of the Tenkan-sen (Conversion Line), Kijun-sen (Base Line), Senkou Span A and B (Leading Span A and B), and the Chikou Span (Lagging Span).

The Tenkan-sen and the Kijun-sen are the main entry signal lines in the Ichimoku Cloud indicator. These lines represent the short- and mid-term trends using the median of price over a predetermined period. The Tenkan-sen line is based on the median price over a period of nine candles, while the Kijun-sen is based on the median price over a period of 26 candles.

Trend direction is based on how the two lines are stacked. Trade signals are also generated whenever the Tenkan-sen crosses over the Kijun-sen, indicating a trend reversal.

Rads MACD

Rads MACD is a custom trend indicator based on the Moving Average Convergence and Divergence (MACD).

The MACD is computed by determining the difference between two preset moving average lines. Trade signals are then generated whenever the two moving average lines intersect, causing the MACD line to reverse.

The Rads MACD indicator is an oscillating indicator displayed using histogram bars. Positive bars indicate a bullish trend direction while negative bars indicate a bearish trend direction. The bars also change colors depending on whether the current bar has a bigger value compared to the previous bar. Bars with bigger values compared to the preceding bar are colored lime, while bars with smaller values compared to the previous bar are colored red.

Trading Strategy

This trading strategy produces trade signals based on the confluence of trend reversal signals as indicated by the Kijun Tenkan indicator and the Rads MACD indicator.

The Kijun Tenkan trade signals is simply based on the crossovers of the Tenkan and Kijun lines. While it is a good idea to align the long-term trend and short-term trend using the other components of the Ichimoku Cloud indicator, trade signals that include the Senkou Span lines as a filter are often lagging, causing trades to have lower yields compared to trades taken as soon as the Tenkan-sen and Kijun-sen lines crossover.

The Rads MACD signals are simply based on the crossing over of the histogram bars over the midline. This serves as a confirmation and confluence to the signal produced by the Kijun Tenkan indicator.

Indicators:

  • Rads_MACD (default setting)
  • Kijun Tenkan (default setting)

Preferred Time Frames: 15-minute and 30-minute charts

Currency Pairs: major and minor pairs with enough volume and low spread

Trading Session: London and New York sessions

Buy Trade Setup

Entry

  • The Tenkan line (red) should cross above the Kijun line (blue) indicating a bullish trend reversal.
  • The Rads MACD bars should cross above zero indicating a bullish trend reversal.
  • These bullish trend reversal signals should be closely aligned.
  • Enter a buy order on the confirmation of the conditions above.

Stop Loss

  • Set the stop loss a few pips below the Kijun line.

Exit

  • Close the trade as soon as price closes below the Kijun line.

MACD Kijun Tenkan Forex Day Trading Strategy

MACD Kijun Tenkan Forex Day Trading Strategy 2

Sell Trade Setup

Entry

  • The Tenkan line (red) should cross below the Kijun line (blue) indicating a bearish trend reversal.
  • The Rads MACD bars should cross below zero indicating a bearish trend reversal.
  • These bearish trend reversal signals should be closely aligned.
  • Enter a sell order on the confirmation of the conditions above.

Stop Loss

  • Set the stop loss a few pips above the Kijun line.

Exit

  • Close the trade as soon as price closes above the Kijun line.

MACD Kijun Tenkan Forex Day Trading Strategy 3

MACD Kijun Tenkan Forex Day Trading Strategy 4

Conclusion

This simple trading strategy is a high yield type of strategy.

Trades taken during the crossover of the Tenkan and Kijun lines which result in a trend allow traders to take high yielding trades that could gain a lot of pips while risking only a few pips on tight stop losses. This produces high yield trades and high reward-risk ratio trade setups.

Although aligning trades with the longer-term trends of the Ichimoku Cloud, which are the Senkou Span lines, tend to produce trades with better probability, it often causes a lag between the trade signal and the actual entry, thus decreasing the reward-risk ratio. This is why this strategy opts to forgo the Senkou Span lines.

Instead, it makes use of the Rads MACD indicator confluence to indicate a longer-term trend reversal since the Rads MACD indicator tends to favor longer-term trends. Aligning the Kijun Tenkan signals with the Rads MACD signals signifies a long-term trend reversal with less lag on the entry.

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