WoodiesCCI and Signal Arrows Forex Trading Strategy
There are many different types of traders. Different styles, different strategies, different personalities. But there is a certain type of trader that thrives in the trading world, not because they have good intuition or are great technical analysts, but simply because they can think in a peculiar way. These types of traders view trading strategies as a set of rules, which when met, would trigger them to trade. For them, trading setups are a basic rule of questions answerable by “yes” and “no”. They think much like computer programs, having a series of “yes” and “no” questions and “if-then” actions. They are the algorithmic traders.
Although algorithmic trading is mostly associated with programmed trading robots, having a set of rules which satisfy an “if-then” format could also be run by a human. Although algorithmic trading is based on letting the law of large numbers work for you by taking all trades that satisfy the rules, the advantage of having a human touch to a trading system is that a human trader could subjectively and intuitively decide should be taken based on past experiences with the market.
Trading Strategy Concept
This strategy is a strategy based on a few rules which could also be traded on an “if-then” basis.
To implement this strategy, we will be using three indicators.
First, we will be using the MACD. The MACD will be used using the crossing of the histogram bars over the zero line. This means that if the MACD histogram is positive or is crossing over zero, we are qualified to take a buy trade. If the MACD histogram bars is negative or is crossing below zero, then we are looking to take a sell trade.
Next, we will be using the WoodiesCCI. It is a custom indicator which is a modified version of the regular CCI. This particular indicator correlates well with the MACD crosses. We will be using the WoodiesCCI the same way we are to use the MACD. We will be buying when the histogram is above zero and sell when the histogram is below zero.
Lastly, we will be using the ExponentialMovingAveragesSignal. This is a custom indicator that plots arrows as signals based on the crossing over of certain moving averages. If set on the right parameters, this custom indicator also correlates well with the above-mentioned indicators.
Indicators
- MACD: default parameters
- WoodiesCCI
- A_period: 56
- B_period: 18
- num_bars: 550
- ExponentialMovingAveragesSignal
- FasterEMA: 15
- SlowerEMA: 18
Timeframe: 5-minute, 15-minute, 30-minute and 1-hour charts
Currency Pair: any
Buy (Long) Trade Setup Rules
Entry
- MACD histogram should be positive or crossing above zero
- WoodiesCCI histogram should be positive
- ExponentialMovingAveragesSignal indicator should print a green arrow pointing up
- Place a buy market order on the confluence of the above rules
Stop Loss
- Set the stop loss at the immediate support below the entry candle
Exit
- Close the trade on the occurrence of any of the following:
- MACD histogram crosses below zero
- WoodiesCCI histogram crosses below zero
- ExponentialMovingAveragesSignal indicator prints a red arrow pointing down
Sell (Short) Trade Setup Rules
Entry
- MACD histogram should be negative or crossing below zero
- WoodiesCCI histogram should be negative
- ExponentialMovingAveragesSignal indicator should print a red arrow pointing down
- Place a sell market order on the confluence of the above rules
Stop Loss
- Set the stop loss at the immediate resistance above the entry candle
Exit
- Close the trade on the occurrence of any of the following:
- MACD histogram crosses above zero
- WoodiesCCI histogram crosses above zero
- ExponentialMovingAveragesSignal indicator prints a green arrow pointing up
Conclusion
This strategy is a workable rules-based strategy.
It would work well on markets where long running trends tend to occur often. This is because all the rules tend to lean on catching long running trends as standalone indicators. Crossover strategies, which is where the ExponentialMovingAveragesSignal indicator is based from is based on catching long trends. The same is true with the MACD indicator as well as this parameter settings of the WoodiesCCI indicator. By taking trades based on the confluence of the three, we tend to have a higher probability of catching a trend. By exiting when any of the three reverses, we hope to stay on the trade when the trend still hasn’t reversed and exit at the first sign of reversal.
However, there will be instance when a sharp reversal would cause your profits to be cut as compared to exiting at the peak. Two avoid this, you could exit the trade when any of the two histogram oscillators, the MACD and the WoodiesCCI, is showing signs of reverting back to its mean. Another option would be to set a fixed hard take profit target.
It would also be a good idea to employ a trailing stop based on moving the stop loss after every expansion phase of the market. Whenever the market wildly moves in your favor, you could move the stop loss at the newly formed support or resistance to protect some profits.
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