Quantitative Reversal Forex Trading Strategy

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Qualitative Quantitative Reversal Forex Trading Strategy

Many traders are out looking for the “Holy Grail”. They spend all their life looking for it but at the end of the day never finds it. But what is it really? Is it an indicator, a strategy, a system? Is it a unique money management strategy that lets you never lose money? Some say it is trading psychology, or even the trader himself or herself. Maybe it is all of this and more? These questions are proof enough that no trading strategy is a “Holy Grail”.

No strategy would give a risk-free trade with unlimited income potential. In fact, this is the very essence of trading, managing risk and yield potential in the most efficient manner in order to achieve profits in the long run. The risk of losing will always be there. It is all about minimizing our exposure to it while maximizing our chances of earning a profit.

Quantitative Reversal Forex Trading Strategy is not a Holy Grail trading strategy. It is not perfect, but it does provide good returns when used in the right market environment.

This strategy uses a high probability indicator that could identify major swing points quite accurately. This gives traders a good chance of taking trades that have a high potential to return positive yields.

QQE Current Timeframe

QQE stands for Quantitative Estimation. This has no relation or whatsoever with the “Quantitative Easing” policy used by central banks. Instead, Quantitative Estimation (QQE) is a technical indicator which helps traders identify momentum.

QQE is an oscillating indicator that is bound within the range of 0 to 100. It is composed of two lines.

The first line mimics price action and has some similarities with how the Relative Strength Index (RSI) line behaves. The difference is that the QQE line has some smoothing applied to it, creating a more stable oscillation on its own window.

The second line is a dashed line derived from the primary line. This line trails the first line and acts as a signal line. Trend reversal signals are generated whenever the two lines crossover.

Trading Strategy

This trading strategy basically produces trade signals on the crossover of the QQE lines. However, not all crossover signals are high probability signals.

To filter the trade signals that would be considered, signals should come from major swing points that have divergences. These are swing points that have a noticeable discrepancy between the QQE lines and price action when it comes to its peaks and troughs.

Below is a chart that shows the divergence patterns that we could consider.

divergence patterns

Divergences are telltale signs of a possible strong trend reversal. This is because divergences show a mathematical discrepancy with regards to the strength of the market swings. Sooner or later, one would give way. Whenever it is price that gives way, a strong trend reversal usually occurs.

As soon as we find a divergence between price action and the QQE lines, we wait for the crossover signal on the QQE indicator.

Crossover signals which come from the opposite half of the QQE range usually has a higher probability. Bullish crossovers coming from below 50 and bearish crossovers coming from above 50 usually has a high probability of resulting in a profitable trade.

Indicators:

  • QQE (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

  • The QQE lines should come from below 50.
  • A bullish divergence should be observable on the chart.
  • Enter a buy order as soon as the solid QQE line crosses above the broken QQE line.

Stop Loss

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

Exit

  • Close the trade as soon as the solid QQE line crosses below the broken QQE line.

Qualitative Quantitative Reversal Forex Trading Strategy

Qualitative Quantitative Reversal Forex Trading Strategy 2

Sell Trade Setup

Entry

  • The QQE lines should come from above 50.
  • A bearish divergence should be observable on the chart.
  • Enter a sell order as soon as the solid QQE line crosses below the broken QQE line.

Stop Loss

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

Exit

  • Close the trade as soon as the solid QQE line crosses above the broken QQE line.

Qualitative Quantitative Reversal Forex Trading Strategy 3

Qualitative Quantitative Reversal Forex Trading Strategy 4

Conclusion

This trading strategy could work wonders during conditions where the market has wide swings. Trades could reverse deep allowing for bigger yields compared to the risk on the stop loss.

However, using this on a choppy market with tight ranges would often result in a loss. It is best to assess if the market could allow for trading on the market swings prior to using this strategy.

Also, not all trades would result in a win. Some traders could have an average of one win for every three tries, while some could get a win ratio of around 60%. It all depends on how adept the trader is in choosing the right trade setup.

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