Quantile Price Oscillation Forex Trading Strategy

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Quantile Price Oscillation Forex Trading Strategy 1

Many people think of trading as gambling. Even some traders think of trading this way. People who don’t understand trading think of it as something that is out of pure chance or luck. Sure, there is a certain element of chance inherent trading but that is not all that there is to it. Seasoned traders understand that trading is all about probabilities not just luck. It is not about rolling the dice in a casino, but it is actually the exact opposite. In the casino the probabilities of a gambler winning is stacked against him. A gambler could only win a meager amount compared to the risk he has taken and the probability that he would win or lose. However, in trading traders could device a plan that has a high probability of winning or could yield high returns compared to the risk taken.

Quantile Price Oscillation Forex Trading Strategy is a strategy centered around the concept of probabilities. In fact, with this strategy, we would be using indicators that could help determine which direction price is going with a high degree of probability.

Quantile Bands Indicator

The Quantile Bands is a custom indicator based in statistics and the theory of probability. Quantiles are statistical terms pertaining to cut points. These are points that divide a range of a probability distribution into equal intervals.

The Quantile Bands indicator makes use of this concept by determining the median and drawing outer bands above and below it. These lines act much like some indicators which also draws outer bands, such as the Bollinger Bands. If price is below the midline, the market could be considered bearish, while if price is above the midline, then the market could be considered bullish.

The indicator also conveniently indicates trend direction based on the color of the midline. Bullish trends have a lime green line, while bearish trends have a sandy brown line. Non-trending markets have a silver midline. This makes it easier for a trader to identify trend direction and whether the market is trending strong enough.

The outer bands are much like the outer bands of the Bollinger Bands. They could help determine overbought and oversold conditions. However, during strong trends, price tends to stick close to the outer bands and even stay beyond it.

Percentage Price Oscillator

The Percentage Price Oscillator (PPO) is a momentum indicator which helps traders identify trend direction. It is an oscillating indicator much like the Moving Average Convergence and Divergence (MACD).

It also indicates trend direction based on the relationship between two moving averages. However, instead of drawing lines or histograms based on the absolute difference between two moving averages, it draws two oscillating lines based on the percentage of the difference compared to the longer-term moving average. This provides a much smoother oscillation with less false signals, making it useful as a confirmation for entries.

Trading Strategy

The Quantile Price Oscillation Forex Trading Strategy provides trade signals based on the confluence of the Quantile Bands indicator and the Percentage Price Oscillator.

These two indicators complement each other quite well. The Quantile Bands indicator provides the leading trend signal based on the changing of colors of its midline indicating a change in trend direction. Often, these trade signals are accompanied by price action sticking close to the outer bands. This often the case when there is momentum behind the trend.

The Percentage Price Oscillator provides the confirmation of the trend reversal by providing a trend reversal signal based on the crossing over of its two lines over the midline. This often comes a few candles after the changing of the color of the Quantile Bands’ midline.

Indicators:

  • Quantile_bands_1.3
  • PPO
    • Fast EMA: 24
    • Slow EMA: 52

Timeframe: preferably 1-hour, 4-hour and daily charts

Currency Pairs: preferably major and minor pairs

Trading Session: Tokyo, London and New York sessions

Buy Trade Setup

Entry

  • Price should close above the midline of the Quantile Bands indicator
  • The midline of the Quantile Bands indicator should change to lime green indicating a bullish trend reversal
  • The two lines of the Percentage Price Oscillator should cross above zero indicating a bullish trend reversal
  • These bullish trend signals should be somewhat aligned
  • Enter a buy order on the confluence of the above conditions

Stop Loss

  • Set the stop loss on the support level below the entry candle

Exit

  • Close the trade if a candle closes below the lower outer band of the Quantile Bands indicator
  • Close the trade if the midline of the Quantile Bands indicator changes to silver

Quantile Price Oscillation Forex Trading Strategy 1

Quantile Price Oscillation Forex Trading Strategy 2

Sell Trade Setup

Entry

  • Price should close below the midline of the Quantile Bands indicator
  • The midline of the Quantile Bands indicator should change to sandy brown indicating a bearish trend reversal
  • The two lines of the Percentage Price Oscillator should cross below zero indicating a bearish trend reversal
  • These bearish trend signals should be somewhat aligned
  • Enter a sell order on the confluence of the above conditions

Stop Loss

  • Set the stop loss on the resistance level above the entry candle

Exit

  • Close the trade if a candle closes above the upper outer band of the Quantile Bands indicator
  • Close the trade if the midline of the Quantile Bands indicator changes to silver

Quantile Price Oscillation Forex Trading Strategy 3

Quantile Price Oscillation Forex Trading Strategy 4

Conclusion

This strategy is a good trend following strategy which trades on confirmed trend reversals. It does tend to have a later entry as compared to other trend reversal strategies. However, this allows traders to enter a trade with a more defined trend reversal rather than entering too early in a probable trend reversal.

This strategy should be used with excellent trade management. Setting stop losses and profit targets might not allow traders to maximize profits since these trade setups may trend quite long. However, there will also be times when the trend reverses too soon. For this reason, traders using this strategy should learn how to time moving the stop loss to breakeven and trailing it at a sufficient distance in order to protect profits.

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