Support and Resistance Arrows Forex Trading Strategy

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Support and Resistance Arrows Forex Trading Strategy

The forex market could be very confusing at times. Price charts could seem like a messy puzzle which is impossible to decipher. Understanding what the market is doing, where price in going, and trading the forex market could be a daunting task for new traders.

However, there are ways to make it a lot easier for traders to understand what the market is doing. One of the things new traders can do is to find tools that could help them make sense of what the market is doing based on the price chart. These tools are called technical indicators. Technical indicators indicate what the market is more likely to do in terms of directional bias, trend, momentum, volatility and reversals. These indications are mathematically computed based on historical price movements.

Traders who use technical indicators could find a confusing price chart make more sense because indicators often give traders a clue regarding what the market might be doing next. However, there are also many instances wherein technical indicators are pointing in different directions. Trading in these situations might be very risky.

Confluences drastically increase the win probability of trade setups that are based on technical indicators. This is because confluences are simply points in a price chart wherein several indications point toward the same direction. If you have watched the game “Who Wants to be a Millionaire?”, having a confluence is like asking the audience and seeing that most of the audience gave the same answer. It is more likely that the correct answer is the one which most of the audience chose rather than the other answers. Having a confluence of trend directions indicate that price is more likely to move in a certain direction rather than against it.

EMA Crossover Signal

One of the most popular techniques which many traders use to find a potential trend reversal is by looking for moving average crossovers. This is a scenario wherein a faster moving average line crosses over a slower moving average line. The direction of the crossover indicates the direction of the potential trend reversal.

The EMA Crossover Signal indicator is based on this concept. This indicator is a trend reversal signal indicator which is based on the crossing over of an underlying pair of Exponential Moving Average (EMA) lines.

The indicator conveniently plots an arrow pointing the direction of the potential trend reversal whenever it detects the underlying moving average lines crossover. Traders can use these arrows as an entry signal for their trend reversal trade setups.

Chanel Scalper

Chanel Scalper is another custom trend following technical indicator which helps traders identify the direction of the trend as well as potential trend reversals.

This indicator plots a line on the price chart which shadows the movement of price action. It shifts above price action to indicate a bearish trend bias or below price action to indicate a bullish trend bias.

The color of the lines also changes depending on the direction of the trend. An orange line below price action indicates a bullish trend bias. A yellow line above price indicates a bearish trend bias.

Traders can use the indications of the Chanel Scalper indicator as a trend direction filter or use the shifting of the lines and the changing of its color as a trend reversal signal.

Trading Strategy

Support and Resistance Arrows Forex Trading Strategy is a simple trend reversal strategy on the mid-term trend which is based on the confluence of the EMA Crossover Signal indicator and the Chanel Scalper indicator.

However, although this strategy is geared towards the shifting of the mid-term trend, trade signals should still be aligned with the long-term trend.

The long-term trend will be based on the location of price action in relation to the 200-period Exponential Moving Average (EMA) line, as well as the slope of the line. Trades should also be taken near the start of the new long-term trend, which is near the point where price action has crossed over the 200 EMA line.

Trade setups are confirmed as soon as the EMA Crossover Signal and the Chanel Scalper indicator provide a trend reversal signal at exactly the same price bar.

Indicators:

  • EMA Crossover Signal
  • Chanel scalper
  • 200 EMA

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

Currency Pairs: FX majors, minors and crosses

Trading Sessions: Tokyo, London and New York sessions

Buy Trade Setup

Entry

  • Price action should cross above the 200 EMA line.
  • The 200 EMA line should slope up.
  • The EMA Crossover Signal indicator should plot an arrow pointing up.
  • The Chanel Scalper indicator should shift below price action and should change to orange.
  • The bullish trend reversal signals should be exactly aligned.
  • Enter a buy order on the confirmation of these conditions.

Stop Loss

  • Set the stop loss below the Chanel Scalper line.

Exit

  • Close the trade as soon as price closes below the Chanel Scalper line.

Support and Resistance Arrows Forex Trading Strategy

Support and Resistance Arrows Forex Trading Strategy 2

Sell Trade Setup

Entry

  • Price action should cross below the 200 EMA line.
  • The 200 EMA line should slope down.
  • The EMA Crossover Signal indicator should plot an arrow pointing down.
  • The Chanel Scalper indicator should shift above price action and should change to yellow.
  • The bearish trend reversal signals should be exactly aligned.
  • Enter a sell order on the confirmation of these conditions.

Stop Loss

  • Set the stop loss above the Chanel Scalper line.

Exit

  • Close the trade as soon as price closes above the Chanel Scalper line.

Support and Resistance Arrows Forex Trading Strategy 3

Support and Resistance Arrows Forex Trading Strategy 4

Conclusion

Although these trade setups do not come by too often, they are a gem when they do. This is because confluences between two high probability trade signals tend to produce good results.

These trade setups have a very high probability of resulting in a winning trade, while at the same time the open-ended exit points of the trade setups allow traders to maximize on profits that the market would give them.

When trading this strategy, it is best to also trail the stop loss a few pips behind the Chanel Scalper line. This would protect our floating profits from any unexpected reversals.

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