Quantile Swing Forex Trading Strategy

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Quantile Swing Forex Trading Strategy

“Trade with the trend!” This is a trite adage that many traders use. However, this is probably because this statement holds a lot of truth in it. This is because trading in the direction of the trend has a higher probability that price would sooner or later move in the desired direction. This translates to a higher probability of a winning trade if the trade is managed or entered correctly.

Trading with the trend means looking at where the general flow of the market is moving. Is price generally moving higher and higher or is it going down? Is the market in an uptrend or is it in a downtrend? As soon as a trader identifies a trending market and the direction of the trend, the trader should only be looking to trade in the direction of the trend.

Now, the question is, when or where should we take trades? Different traders have different approaches. Momentum traders would wait for strong momentum signals before they would take trades. Astute traders on the other hand would wait for retracements. This is because retracements are opportunities for traders to enter trades at a better price.

Quantile Swing Forex Trading Strategy is a trend following strategy which provides trade signals based on price rejections after a retracement or consolidation phase during trending market conditions. This provides entries that have a relatively high probability due to the trend, while at the same time trades are generally entered at a good price point.

Quantile Bands

Quantile Bands indicator is a custom technical indicator which is based on the science of probabilities. In statistics, quantile bands are basically cut points dividing the range of probability distribution into contiguous intervals with equal probabilities.

Quantile Bands indicator plots lines which serves as the cut points of the probability range. These lines move depending on the direction and strength of the trend. If the trend is bullish, the midline will slope up. If the trend is bearish, the midline will slope down. If price gaining bullish strength, the upper half of the Quantile Bands would expand. If the market is gaining bearish momentum, the lower half of the Quantile Bands would expand.

The Quantile Bands indicator can be used to detect trends. If price action is generally staying on the upper half of the bands, then the trend is bullish. If price action is generally on the lower half of the bands, then the trend is bearish. If price action is crossing the midline multiple times, then the market is not trending. The midline could also be used as a dynamic support or resistance. In a trending market condition, price would tend to bounce off the midline.

SwingMan Ultra Super TRIX PV

SwingMan Ultra Super Trix PV (SwingMan) is a custom indicator which is part of the oscillator type of indicators.

The SwingMan indicator plots histogram bars to indicate the directional bias of the market. These bars could either be positive or negative. Positive bars indicate a bullish directional bias, while negative bars indicate a bearish directional bias. The bars also change color depending on the strength or momentum of the trend. Green bars indicate a strengthening bullish bias, while yellow green bars indicate a weakening bullish bias. Maroon bars indicate a strengthening bearish bias, while tomato bars indicate a weakening bearish bias.

Relative Vigor Index

The Relative Vigor Index (RVI) is a technical indicator which is also an oscillator type of indicator.

RVI indicates trend direction or bias by measuring the strength of a trend or price movement and comparing it to historical price movements. This is based on the tendency of price action to continually create lower swing points in a downtrend and higher swing points in an uptrend. However, unlike many popular oscillator indicators, RVI applies a smoothening effect. This lessens the effect of errant and isolated price spikes which go against the direction of the trend, creating a more reliable trend bias indication.

The RVI indicator plots two lines which could oscillate to positive or negative. Positive lines indicate a bullish directional bias, while negative lines indicate a bearish directional bias. Momentum is also identified based on how the two lines overlap. If the faster line is above the slower line, bullish momentum is identified. If the faster line is below the slower line, then bearish momentum is identified.

Trading Strategy

This trading strategy is a trend following strategy which combines trend bias indications coming from the above-mentioned technical indicators as well as trade setups based on price action.

On the Quantile Bands indicator, trend direction is identified based on the slope of the midline, as well as the general location of price action in relation to the sections of the Quantile Bands.

On the SwingMan indicator and the RVI indicator, trend direction is based on whether the histogram bars or lines are generally staying above zero or below zero.

As soon as the trend is detected, we then wait for price to retrace towards the midline of the Quantile Bands. Then, we wait for price action to indicate price rejection on the area of the midline. If price rejects the midline of the Quantile Bands and the directional bias indicated by the technical indicators remain intact, a valid trade setup is generated.

Indicators:

  • Quantile_bands_1.3
    • Calculating Period: 40
  • SwingMan-UltraSuperTRIX_PV_4col
    • TRIX Period: 12
  • Relative Vigor Index
    • Period: 32

Preferred Time Frames: 1-hour, 4-hour and daily charts

Currency Pairs: FX majors, minors and crosses

Trading Sessions: Tokyo, London and New York sessions

Buy Trade Setup

Entry

  • Price action should generally be on the upper half of the Quantile Bands.
  • The SwingMan bars should generally be positive.
  • The RVI lines should generally be positive.
  • Price should retrace towards the midline of the Quantile Bands.
  • Price action should show signs of price rejection on the area of the midline of the Quantile Bands.
  • The RVI lines should start to hook up.
  • Enter a buy order on the confirmation of the conditions above.

Stop Loss

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

Exit

  • Close the trade as soon as price closes below the midline of the Quantile Bands.

Quantile Swing Forex Trading Strategy

Quantile Swing Forex Trading Strategy 2

Sell Trade Setup

Entry

  • Price action should generally be on the lower half of the Quantile Bands.
  • The SwingMan bars should generally be negative.
  • The RVI lines should generally be negative.
  • Price should retrace towards the midline of the Quantile Bands.
  • Price action should show signs of price rejection on the area of the midline of the Quantile Bands.
  • The RVI lines should start to hook down.
  • Enter a sell order on the confirmation of the conditions above.

Stop Loss

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

Exit

  • Close the trade as soon as price closes above the midline of the Quantile Bands.

Quantile Swing Forex Trading Strategy 3

Quantile Swing Forex Trading Strategy 4

Conclusion

This trading strategy allows traders to objectively identify trending market conditions based on a confluence of technical indicators. However, it is also best if traders could visually confirm if the market is indeed trending.

Aside from this, traders should also learn to visually identify price action and price rejections based on candlestick patterns. Price rejections and reversal patterns that occur on the midline of the Quantile Bands tend to work effectively. This is because these levels are averages of price action.

Traders who could master identifying trending markets and price action could effectively use this strategy to profit from the market.

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