Trend Indicator Signals Forex Trading Strategy

To many people, trading seems like a difficult job reserved only for financial geniuses. People who are not into trading or are new to trading often feel lost when they look in a price chart. They know it is showing the movement of price. They may know how to read it. But it would usually mean nothing to them. They would not be able to interpret what price is doing, and they would likely not be able to see any opportunity to make money out of what the market is showing them, even if they are staring at a trading opportunity right in front of them. This is because new traders still lack the skill to read price charts and interpret market behaviors just by looking at charts. This skill is called technical charting or technical analysis.

Technical chartists take pride in being able to read price charts and understanding what the market might be doing. It takes skill and this skill needs time to develop. However, there is another way to do technical analysis trading which is much easier for new traders. This is through the use of technical indicators. These are tools that help traders identify market movements such as trends and trend reversals. Reading price charts could be a whole lot easier just by using some effective technical indicators.

Forex MT4 Trend Indicator

The Forex MT4 Trend Indicator is an excellent momentum indicator which accurately indicates trend direction.

This indicator is derived from the Exponential Moving Average (EMA). The indicator prints bars based on the EMA of different components of the candles. The bars are then colored depending on the direction of the trend. Bullish trends have bars colored blue while bearish trends have red bars. The indicator also prints arrows as entry signals indicating trend changes.

If observed closely, this indicator is great at indicating midterm trends. It is accurate and reliable, it allows traders to have consistently high probability trade entries even as a standalone entry signal.

Fisher Transform

The Fisher Transform indicator is an oscillating indicator which transfigures price into a Gaussian normal distribution. This mathematically-based indicator makes use of probabilities in order to help traders identify high probability trading signals.

This indicator proves to be very effective and could be used in a variety of ways. Mean Reversal traders use this indicator to identify potential trend reversals based on overbought or oversold conditions. The indicator draws two lines that oscillate from positive to negative and vice versa. The market is considered to be overbought whenever price is considerably above zero. Mean Reversal signals are indicated when the two lines crossover going towards zero. On the other hand, lines considerably below zero indicate an oversold condition, and lines crossing over heading towards zero are considered buy entry signals.

Trend Following traders on the other hand make use of the midline as the confirmation of a trend reversal. Lines crossing over zero is indicative of a bullish trend reversal, while lines crossing below zero indicates a bearish trend reversal.

Trading Strategy

This Trend Indicator Signals Forex Trading Strategy is based on the confluence of two complementary indicators, which provide accurate trend reversal signals. The Forex MT4 Trend Indicator and the Fisher Transform indicator works well in identifying trend direction and trend reversals. They also tend to have lesser false trade signals as compared to other indicators and allow traders to hold on to trades which are on a trend much longer. Coincidentally, these indicators also tend to produce signals that trend whenever they are in confluence.

Entry signals will be based on the confluence of the Forex MT4 Trend Indicator printing an entry signal arrow and the Fisher Transform indicator crossing over from positive to negative or vice versa.

However, although these indicators produce high quality trade signals as is, it is much better to align trade signals with the long-term trend. This is to allow the trades to have enough room to move. To do this, we will be making use of the 200-period Exponential Moving Average (EMA) as our long-term trend filter. Trades should be taken in the direction of the 200 EMA trend.

Indicators:

• forex-mt4-trend-indicator
  • MaPeriod: 24
• Fisher_org_v12
  • Length: 12
• 200 Exponential Moving Average (EMA)

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

Currency Pairs: preferably major and minor pairs

Trading Session: Tokyo, London and New York

Buy Trade Setup

Entry

• Price should be staying above the 200 EMA indicating a prevailing bullish long-term trend
• Price should retrace to the 200 EMA causing the Forex MT4 Trend Indicator and the Fisher Transform indicator to temporarily reverse
• The Forex MT4 Trend Indicator should change to blue indicating a bullish trend reversal
• The Fisher Transform indicator lines should cross above zero indicating a bullish trend reversal
• These bullish trend reversal 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

Exit

• Close the trade as soon as the Forex MT4 Trend Indicator prints a red bar
• Close the trade as soon as the Fisher Transform lines cross below zero

Sell Trade Setup

Entry

• Price should be staying below the 200 EMA indicating a prevailing bearish long-term trend
• Price should retrace to the 200 EMA causing the Forex MT4 Trend Indicator and the Fisher Transform indicator to temporarily reverse
• The Forex MT4 Trend Indicator should change to red indicating a bearish trend reversal
• The Fisher Transform indicator lines should cross below zero indicating a bearish trend reversal
• These bearish trend reversal 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

Exit

• Close the trade as soon as the Forex MT4 Trend Indicator prints a blue bar
• Close the trade as soon as the Fisher Transform lines cross above zero

Conclusion

This trading strategy is a working trading strategy which works well as a swing trading strategy. If you would observe the longer timeframes, trends tend to respect the 200 EMA and would bounce off it after a retrace. Price Action traders use diagonal support or resistance breakouts as entries for these entries. However, these entries are very subjective. Using the Forex MT4 Trend Indicator and Fisher Transform’s confluence makes these entries much more objective. This strategy also allows for entries that trend much longer allowing for yields as much as 3:1 to as high as 10:1.

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