Momentum Up-Down Bars Forex Trading Strategy

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Momentum Up-Down Bars Forex Trading Strategy

Simple trading, it may not be appealing to many traders, but this might just be the solution for many new traders.

Traders often look for complex strategies with the notion that complex strategies are the ones that work. Well, complex strategies could also fail just as much as simple strategies do, and simple strategies could gain profits just as much as complex strategies could.

Often it is not much about what strategy the trader is using but more about the psyche of the trader. It is less about which strategy is best, but more of which strategy best fits the trader’s temperament. A complex strategy could work well for one but could be too difficult to implement for another. A simple strategy might not seem good enough for one trader but could produce consistent profits for another.

Momentum Up-Down Bars Forex Trading Strategy is a very simple strategy that could be implemented by most traders. It provides entries based on a confluence of momentum reversal signals coming from two complementary momentum indicators.

Up-Down Bars Indicator

Up-Down Bars indicator is a custom oscillating indicator which helps traders identify momentum. This indicator counts the number of bullish bars (close – open) and the number of down bars (open – close).

The indicator displays its readings as histogram bars. Positive bars indicate a bullish momentum while negative bars indicate a bearish momentum.

Crossovers from negative to positive indicate a bullish momentum reversal while crossovers from positive to negative indicate a bearish momentum reversal.

Ind-GG01 Indicator

Ind-GG01 indicator is a custom technical indicator which identifies momentum based on multiple factors.

This indicator factors in moving averages, Parabolic Stop and Reverse (PSAR), and Bollinger Bands within its computation. In a way, this indicator is based on a confluence of multiple factors.

Ind-GG01 indicates trend direction by displaying dots and arrows on the price chart. Lime arrows pointing up indicate a bullish momentum bias, while blue dots indicate a bearish momentum bias.

Trading Strategy

This trading strategy trades on confluences coming from the Up-Down Bars indicator and the Ind-GG01 indicator.

Whenever a strong momentum reversal occurs, the two indicators tend to produce reversal signals at the same time. Trades that are taken whenever the two indicators provide signals that are aligned tend to produce gains on the next few candles.

These momentum shifts tend to start a new trend. It is during these trade setups when traders could gain more pips in a single trade. Traders who can hold these trades longer can gain more pips on winning trades.

However, there are also instances wherein the momentum shift would not result in a trend reversal. During these times, price would travel in favor of the trade for a few candles prior to reversing. For this reason, it is best to exit the trade when either one of the indicators show signs of a reversal.

Indicators:

  • Ind-GG01 (default settings)
  • UpDownBars
    • Period: 65

Preferred Time Frames: 5-minute, 15-minute, 30-minute, 1-hour, 4-hour and daily charts

Currency Pairs: major and minor forex pairs

Trading Session: Tokyo, London and New York sessions

Buy Trade Setup

Entry

  • Price should cross above the Ind-GG01 dots and arrows.
  • The Ind-GG01 should start printing lime arrows pointing up indicating a bullish momentum reversal.
  • The Up-Down Bars should cross above zero indicating a bullish trend.
  • These bullish momentum 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 low of the entry candle.

Exit

  • Close the trade as soon as the Ind-GG01 indicator starts printing blue dots.
  • Close the trade as soon as the Up-Down Bars cross below zero.

Momentum Up-Down Bars Forex Trading Strategy

Momentum Up-Down Bars Forex Trading Strategy 2

Sell Trade Setup

Entry

  • Price should cross below the Ind-GG01 dots and arrows.
  • The Ind-GG01 should start printing blue dots indicating a bearish momentum reversal.
  • The Up-Down Bars should cross below zero indicating a bearish trend.
  • These bearish momentum 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 high of the entry candle.

Exit

  • Close the trade as soon as the Ind-GG01 indicator starts printing lime arrows pointing up.
  • Close the trade as soon as the Up-Down Bars cross above zero.

Momentum Up-Down Bars Forex Trading Strategy 3

Momentum Up-Down Bars Forex Trading Strategy 4

Conclusion

This strategy could work well for traders who have the discipline on exiting trades whenever there are signs of a reversal.

Entries based on this strategy have a decent accuracy. If traded right, this strategy could produce trades that would result in profits more often.

Since trade entries using this strategy is a given, it is the trade management skill of a trader which would matter.

Some traders who still have not developed the discipline of exiting trades on signs of a reversal could see their trades lose some pips when in fact the trade had been in the positive territory previously.

Traders who can exit prior to the reversal tend to have a more consistent profit. Win are usually higher for these traders. Some traders who have learned to exit trades based on price action indications of a reversal tend to have the most profits. They can exit trades on the first sign of a reversal allowing them to cash in while gains are still high.

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