Which is more difficult to anticipate, a pullback or a full trend reversal?
Different traders have a different approach to trading the forex market. Some traders are attracted to huge gains. They naturally gravitate to trading strategies that allow them to make huge profits in a single trade. These are usually trend reversal trades coming from bounces off a support or resistance line or reversals from overbought or oversold price levels. However, the possibility of high yielding trades is often balanced out by a low probability of resulting in a profitable trade. This is because reversal setups are very difficult to anticipate since you are predicting that price will reverse even though it has a very strong momentum moving in one direction.
Pull back trade setups on the other hand are quite easier to anticipate. This is because trading on pullbacks assume that you are trading with the trend. Just by the term alone, “pull back”, you would know that the trend or momentum is moving in a certain direction and price is just pulling back a bit for a short market correction. This is why trading on pullbacks tend to produce trades with a higher probability of resulting in a profit.
This strategy is a simple trading strategy which trades in the direction of the trend while using pullbacks as an entry point. It makes use of a custom Pull Back indicator, the Awesome Oscillator, and a moving average line.
50 Simple Moving Average Line as a Mid-term Trend Indicator
Table of Contents
- 1 50 Simple Moving Average Line as a Mid-term Trend Indicator
- 2 Awesome Oscillator
- 3 Pull Back Indicator
- 4 Bullish Awesome Oscillator Trend Pullback Setup
- 5 Bearish Awesome Oscillator Trend Pullback Setup
- 6 Conclusion
There are many ways to identify trend direction. Some traders use price action while others just visually look at the chart to identify the direction of the trend. This is a viable way to look at trends. In fact, with enough skill, this would be an excellent way to identify trending markets. However, this method can sometimes be very subjective. Not all traders have developed the skill to identify trends just by looking at price action on a naked chart. Many new traders would find themselves second guessing trend direction.
Another option would be to use technical indicators to identify trend direction. This is another good option as long as you are using a reliable indicator, which is widely used by traders as a trend direction indicator.
One of these indicators would be the 50-bar Simple Moving Average (SMA) line. The 50 SMA line is widely used by traders as an indication of the mid-term trend. In fact, some traders would trade only in the direction indicated by the 50 SMA line as these trades tend to have a higher win probability.
Traders identify trend direction using the 50 SMA line based on the location of price action in relation to the 50 SMA line. The market is in an uptrend whenever price action is generally above the 50 SMA line, and in a downtrend whenever price action is below the 50 SMA line. The slope of the 50 SMA line also confirms the direction of the trend because it slopes up in an uptrend, and down in a downtrend.
The Awesome Oscillator (AO) is another technical indicator which is widely used by traders as a means to confirm trend direction.
The AO is an oscillator which is technically based on an underlying crossover of moving average lines. It computes for the difference between a 5-period Simple Moving Average (SMA) line and a 34-period Simple Moving Average (SMA) line. However, these moving average lines are based on the midpoint of each bar rather than the usual close of the bar. It then plots the difference as bars that oscillate around zero. The color of the bars it plots also change to indicate a trend which gaining momentum or a weakening trend.
Positive green bars indicate a strong bullish trend, while positive red bars indicate a weakening bullish trend. Negative red bars indicate a strong bearish trend, while negative green bars indicate a weakening bearish trend.
Pull Back Indicator
The Pull Back indicator is a custom technical indicator which identifies reversals coming from minor pull backs based on an underlying short-term trend oscillator.
This indicator identifies overbought or oversold price levels based on its underlying oscillator. It then identifies the reversals coming from these short-term overbought or oversold price levels. It then plots an arrow pointing the direction of the reversal coming from a pull back.
Bullish Awesome Oscillator Trend Pullback Setup
- Price action should be above the 50 SMA line.
- The 50 SMA line should slope up.
- The Awesome Oscillator bars should be positive.
- Enter a buy order as soon as the Pull Back indicator plots a blue line pointing up.
- Set the stop loss several pips below the entry candle.
- Close the trade as soon as the Pull Back indicator plots a red arrow pointing down.
Bearish Awesome Oscillator Trend Pullback Setup
- Price action should be below the 50 SMA line.
- The 50 SMA line should slope down.
- The Awesome Oscillator bars should be negative.
- Enter a sell order as soon as the Pull Back indicator plots a red line pointing down.
- Set the stop loss several pips above the entry candle.
- Close the trade as soon as the Pull Back indicator plots a blue arrow pointing up.
This trading strategy is a simple trend continuation trading strategy which trades on pullbacks. The advantage of this strategy is that it objectively identifies trend direction based on the 50 SMA line and the Awesome Oscillator, and it also objectively identifies the pullback entries using the Pull Back indicator.
The Pull Back indicator tends to work very well whenever it is indicating a pullback reversal which is in the direction of the trend. However, price may still continue a bit depending on the momentum of the pullback. This is why it is important not to place the stop loss too close to the entry to avoid premature closure of the trade at a loss on an otherwise profitable trade setup.
Forex Trading Strategies Installation Instructions
Awesome Oscillator Trend Pullback 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 Trend Pullback 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 Trend Pullback Forex Trading Strategy – MT5?
- Download Awesome Oscillator Trend Pullback 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 Trend Pullback Forex Trading Strategy – MT5
- You will see Awesome Oscillator Trend Pullback 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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