Trend reversal strategies are often very difficult to implement. Traders who trade on trend reversals are often trading against the flow of the current market trend. For this reason, the trade setups taken by most traders do not gain traction right away. Traders who are not used to trading trend reversals end up exiting the trade prematurely. However, with a system in place and with the right mindset, trend reversal strategies could become easier.
One of the simplest ways to trade trend reversals is through crossover strategies. It is simple to understand and easy to implement. Traders could enter and exit trades based on rules rather than on gut feel, making it a lot easier for new traders.
Alligator HMA Reversal Forex Trading Strategy is a simple crossover type of trading strategy. It makes use of the Alligator indicator, which is popular moving average crossover indicator known to work well during trending markets. It also considers confluences with other highly reliable indicators that increase the probability of capturing the right trading opportunities.
Table of Contents
- 1 Williams Alligator
- 2 Hull Moving Average
- 3 Moving Average Convergence and Divergence
- 4 Trading Strategy
- 5 Conclusion on Alligator HMA Reversal Forex Trading Strategy
The Williams Alligator or Alligator indicator was developed by the legendary trader Bill Williams. This indicator is a trend following indicator which helps traders identify trending market conditions, allowing them to pick the right market condition to make profits.
The Alligator indicator is hinged on the premise that the market trends at only about 15% to 30% of the time and ranges for the remaining 70% to 85%. However, it is during this small window of a market trend that profitable make most of their profits.
The Alligator indicator is a set of moving averages composed of a five, eight and 13-period Simple Moving Average (SMA). This moving average set tends to contract during non-trending markets, expand during trending markets, and crossover during trend reversals.
Hull Moving Average
The Hull Moving Average (HMA) is another trend-following indicator used by many traders to identify trend direction.
Moving averages could be used to identify trend direction using different methods, however, there two simple methods that are used more often. First, traders use the location of price in relation to the moving average. Second is using the slope of the moving average line to determine trend direction.
The Hull Moving Average uses the second method to identify trend direction. It changes color whenever the moving average line changes direction indicating the possible trend reversal.
The HMA line is also characteristically very responsive yet retains a very smooth characteristic. This provides a moving average line that has less lag yet is more resistant to erratic price spikes.
Moving Average Convergence and Divergence
The Moving Average Convergence and Divergence, also popularly known as the MACD, is another trend following indicator which helps traders identify the trend bias of the market.
The MACD is based on moving average crossovers. The MACD line is simply the difference between a 12-period Exponential Moving Average (EMA) and a 26-period Exponential Moving Average (EMA). A 9-period Exponential Moving Average (EMA) is then derived from the MACD line. This line is referred to as the Signal Line.
A positive MACD line or histogram bar indicates a bullish trend direction, while a negative MACD line or histogram indicates a bearish trend.
Another way of interpreting the MACD is by looking at how the lines or histogram bars overlap. A MACD line or histogram that is above the Signal Line indicates a bullish trend, while a MACD line below the Signal Line indicates a bearish trend.
This trading strategy produces trade signals based on the crossing over of the Alligator lines and the HMA line indicating a trend reversal.
In this configuration, the HMA line would act as the fastest moving average line. Trend reversals would start with the HMA line piercing through all the Alligator lines. The trend reversal signal is then confirmed once the lime (short-term) and red (mid-term) lines have crossed over the blue (long-term) line.
Trade signals are also filtered based on the trend direction coming from the MACD line. This will be based on whether the histogram bars (MACD) and the Signal Line is positive or negative. The overlapping of the MACD bars and the Signal Line should also confirm the trend direction.
- period: 36
- Alligator (default setting)
- MACD (default setting)
Preferred Time Frames: 1-hour and 4-hour charts
Currency Pairs: major and minor pairs
Trading Sessions: Tokyo, London and New York sessions
Buy Trade Setup
- The MACD histogram and Signal Line should be positive.
- The MACD histogram should be above the Signal Line.
- The HMA line should be green.
- The HMA line should cross above the Alligator lines.
- The lime and red line of the Alligator indicator should cross above the blue line.
- Enter a buy order on the confirmation of these conditions.
- Set the stop loss below the moving average lines.
- Close the trade as soon as price closes below the blue Alligator line.
Sell Trade Setup
- The MACD histogram and Signal Line should be negative.
- The MACD histogram should be below the Signal Line.
- The HMA line should be violet.
- The HMA line should cross below the Alligator lines.
- The lime and red line of the Alligator indicator should cross below the blue line.
- Enter a sell order on the confirmation of these conditions.
- Set the stop loss above the moving average lines.
- Close the trade as soon as price closes above the blue Alligator line.
Conclusion on Alligator HMA Reversal Forex Trading Strategy
This trading strategy is an excellent trend reversal strategy for new traders. It is systematic and has objective rules which helps traders decide whether to pull the trigger or not.
However, since the indicator used is intended for trending market conditions, it is important that traders select markets that have a high propensity to trend. Traders should avoid ranging markets at all cost as this strategy is not suitable for such conditions.
Also, this strategy is a high yield type of strategy. There could be some losses every now and then, however, traders who could catch those big trending moves coming from successful trend reversals could easily cover for the losses and earn even more.
Forex Trading Strategies Installation Instructions
Alligator HMA Reversal Forex Trading Strategy is a combination of Metatrader 4 (MT4) indicator(s) and template.
The essence of this forex strategy is to transform the accumulated history data and trading signals.
Alligator HMA Reversal Forex Trading Strategy provides an opportunity to detect various peculiarities and patterns in price dynamics which are invisible to the naked eye.
Based on this information, traders can assume further price movement and adjust this strategy accordingly.
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How to install Alligator HMA Reversal Forex Trading Strategy?
- Download Alligator HMA Reversal Forex Trading Strategy.zip
- *Copy mq4 and ex4 files to your Metatrader Directory / experts / indicators /
- Copy tpl file (Template) to your Metatrader Directory / templates /
- Start or restart your Metatrader Client
- Select Chart and Timeframe where you want to test your forex strategy
- Right click on your trading chart and hover on “Template”
- Move right to select Alligator HMA Reversal Forex Trading Strategy
- You will see Alligator HMA Reversal Forex Trading Strategy is available on your Chart
*Note: Not all forex strategies come with mq4/ex4 files. Some templates are already integrated with the MT4 Indicators from the MetaTrader Platform.
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