If you would observe the market closely, you would notice that the market is a series of waves. If you have had an experience being in the ocean, you would notice that the market is much like the ocean wherein you would see smaller waves sloshing around while being a part of a much bigger wave. The forex market is just like that. Smaller trends form while being a part of a bigger trend. Then the same bigger trend also is a part of an even bigger trend. The cycle goes on and on from the lowest intraday timeframes up to the higher timeframes.
So, how do we ensure that we are trading a high probability trend? The answer is confluence. Confluence in the direction of the trends. It would be close to impossible to find a point in the market when all the trends align from the 1-minute chart up to daily or even weekly chart trends. We do not need to look for that. What we need to find is just an alignment of a short-term, mid-term and long-term trend, or maybe even just two of the three. Multiple timeframes would be useful, but it is also possible to identify these trends in a single timeframe. This is with the use of technical indicators.
There are some indicators that are geared towards the long-term trends. Some are geared towards the mid-term trend, while others are more of a short-term momentum type of trend indicator.
Here, we would be using three indicators. One is to help us isolate the long-term trend. That would be a moving average line. The second would be the Awesome Oscillator, which is geared towards the mid-term trend. Lastly, we have the Fractals, which can be used for short-term trends.
100 Simple Moving Average
Table of Contents
- 1 100 Simple Moving Average
- 2 Awesome Oscillator
- 3 Conclusion
Moving Average lines are some of the most widely used trend indicators. This is probably because of its simplicity. It is fairly simple to understand and use. Not just that, it is also very malleable. Traders can modify it to their liking in order to fit their needs. It can be modified to lean towards the short-term trends or the long-term trends.
Different moving average setups are used to identify different trend horizons. The 100-period Simple Moving Average (SMA) line is one of the most popular long-term trend indicators. Identifying the long-term trend based on it is pretty simple. The market has an uptrend bias whenever price action is generally above the 100 SMA line, and a downtrend bias whenever price action is generally below the 100 SMA line. At times however, price action would crisscross the 100 SMA line which indicates that the market is not trending. The slope of the 100 SMA line would also follow the direction of the trend. It slopes up whenever the market is in an uptrend, and slopes down whenever the market is in a downtrend.
The 100 SMA line is best used as a trend direction filter, wherein traders would only trade in the trend direction indicated by the 100 SMA line. It could also be used as a basis for a dynamic area of support or resistance where price may bounce. Some traders also use it as a trend reversal signal based on moving average crossovers when paired with other moving average lines.
Moving Average Variables Modified
- Period: 100
- MA Method: Simple
The Awesome Oscillator (AO) is an excellent trend following technical indicator. It is an oscillator which is based around the concept of moving average crossovers.
The AO is derived from the difference between a 5-bar Simple Moving Average (SMA) and 34-bar Simple Moving Average (SMA) line. However, instead of making use of the usual close of each bar as the basis for the computation, it makes uses the midpoints of each bar instead. The resulting difference is then plotted as histogram bars on its own indicator window.
Positive bars indicate a bullish trend bias, while negative bars indicate a negative bias. However, the AO also does have a feature in which it could also indicate the momentum of a trend. This is based on the color of the bars plotted. Positive green bars indicate a strengthening bullish trend, while positive red bars indicate a weakening bullish trend. Inversely, negative red bars indicate a strengthening bearish trend, while negative green bars indicate a weakening bearish trend.
In our setup, we will be using the AO as our basis for the mid-term trend reversal. This will be based on the shifting of the bars from positive to negative or vice versa.
In trading, a Fractal is a recurring price pattern wherein the middle candle is either the peak or the bottom of the pattern.
There are many other patterns of fractals, but these are the basic patterns.
Fractals typically indicate a possible reversal. In a way, we could somehow compare it to a swing high or swing low, only to a lesser degree.
As such, we could also identify the short-term trend direction based on how the fractals are formed. This would be based on whether the fractals are rising or dropping.
In this strategy, we will be using the fractals as the short-term trend indication, particularly as our basis for the trailing stop since a reversal in its pattern may also indicate the end of the short-term trend.
We will also be using a Fractals indicator in order to simplify our identification of the patterns.
Bullish AO – Fractals Setup
- Price action should be above the 100 SMA line.
- The 100 SMA line should slope up.
- Price action should retrace towards the 100 SMA line causing the AO to temporarily become negative.
- Enter a buy order as soon as the AO bar crosses back above zero.
- Set the stop loss on support below the fractal.
- Trail the stop loss as fractals form until stopped out in profit.
Bearish AO – Fractals Setup
- Price action should be below the 100 SMA line.
- The 100 SMA line should slope down.
- Price action should retrace towards the 100 SMA line causing the AO to temporarily become positive.
- Enter a sell order as soon as the AO bar crosses back below zero.
- Set the stop loss on resistance above the fractal.
- Trail the stop loss as fractals form until stopped out in profit.
This type of trading strategy is a basic trend following strategy based on a reversal signal coming from an oscillator. In this case we are using the AO.
Given the pairing of 5 SMA and 34 SMA on the AO, it makes sense as an excellent reversal signal indicator as it is a pair of a very fast moving average line, and a moving average line which is closer to the mid-term horizon.
Trailing stop losses based on fractals is also a viable way to exit a trade. However, it is best to trail the stop loss only when the opposing fractal has been strongly breached.
Forex Trading Strategies Installation Instructions
Awesome Oscillator and Fractals Trend Forex Trading Strategy – MT5 is a combination of Metatrader 5 (MT5) indicator(s) and template.
The essence of this forex strategy is to transform the accumulated history data and trading signals.
Awesome Oscillator and Fractals Trend Forex Trading Strategy – MT5 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 Awesome Oscillator and Fractals Trend Forex Trading Strategy – MT5?
- Download Awesome Oscillator and Fractals Trend Forex Trading Strategy – MT5.zip
- *Copy mq5 and ex5 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 Awesome Oscillator and Fractals Trend Forex Trading Strategy – MT5
- You will see Awesome Oscillator and Fractals Trend Forex Trading Strategy – MT5 is available on your Chart
*Note: Not all forex strategies come with mq5/ex5 files. Some templates are already integrated with the MT5 Indicators from the MetaTrader Platform.
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