Fisher 5-6 Trend Forex Trading Strategy

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Fisher 5-6 Trend Forex Trading Strategy

Trade with the trend! This is the mantra that trend following traders have, and it is for good reason. Trend following trading strategies is probably one of the easier types of trading strategy. Trading with the trend ensures that you are trading with the flow of the market. This means that as a trader, you are not forcing your trades in a direction that is going against what the market is generally doing. Instead, you are just going with the flow, trading in the direction where the market is going.

Trading with the trend significantly increases the accuracy of a trader’s trade direction. It allows traders to have a trade bias should usually be correct most of the time. The only question left is when and where to take the trade.

One of the most common errors made by trend following and momentum traders is that they often chase price. This is the reason why many trend following traders fail. If this is dealt with, then a trader’s win rate and accuracy should significantly improve.

In order to avoid chasing prices during a trend, traders should wait for retracements. This means that traders should wait for price to temporarily move closer to the average price and enter the market as the trend resumes.

Fisher 5-6 Trend Forex Trading Strategy is a trend following strategy that systematically helps traders identify trending markets and provide entry setups based on retracements and resumptions of the trend.

Fisher Indicator

The Fisher indicator is a trend following oscillator developed to help traders identify trend direction bias as well as possible trend reversal points.

Fisher indicator is computed by converting historical prices into a Gaussian normal distribution. This helps traders identify when prices have moved to an extreme compared to the recent historical price.

This version of the Fisher indicator is an oscillator displayed as bars. It has a midline at zero and it could move freely from positive to negative and vice versa. Positive bars are painted lime and indicates a bullish trend bias, while negative bars are painted red and indicates a bearish trend bias.

The oscillation of the Fisher indicator bars tends to move in waves. This allows traders to identify the cyclical movement of price as it contracts and expands. It is also characteristically very smooth yet at the same time has minimal lag, making it ideal for trading short pulses in the direction of the trend.

EMA 5-6 Crossover

EMA 5-6 Crossover is a custom technical indicator developed in order to identify short-term trend reversals. It is a trend following signal indicator based on the crossover of moving averages.

The EMA 5-6 Crossover provides trend reversal signals based on the crossing over of two Exponential Moving Averages (EMA), particularly the 5 bar and 6 bar EMAs. The indicator simply plots an arrow pointing the direction of the trend reversal whenever it detects its underlying EMA lines crossover.

This indicator is ideal for short-term trend signals. It could be used as an entry trigger as it allows traders to confirm trend reversals more responsively.

Trading Strategy

This trading strategy is a trend following strategy which uses the 50 bar Exponential Moving Average (EMA) to identify trend direction. Trend direction is based on the slope of the 50 EMA line, as well as the location of price in relation to the 50 EMA line. Price should not cross over the 50 EMA line and should consistently bounce off it after a retracement. Price action should also show a trending behavior based on its swing highs and swing lows.

As soon as we identify the trend, we then look for trading opportunities in the direction of the trend. These entries should be based on retracements. Retracements should temporarily cause the Fisher indicator bars and the EMA 5-6 Crossover arrows to temporarily reverse. Price should still respect the 50 EMA line and not breach or crossover the line.

As the trend resumes, the Fisher indicator bars would start to resume the direction of the trend. This should then be followed by the EMA 5-6 Crossover indicator to point the direction of the trend. This confluence of signals would be our trade entry signal.

Indicators:

  • 50 EMA
  • EMA 5,6 Crossover
  • Fisher

Preferred Time Frames: 15-minute, 30-minute, 1-hour and 4-hour charts

Currency Pairs: FX majors, minors and crosses

Trading Sessions: Tokyo, London and New York sessions

Buy Trade Setup

Entry

  • The 50 EMA line should be sloping up.
  • Price should be above the 50 EMA line.
  • Price action should be creating higher swing highs and swing lows.
  • Price should retrace toward the 50 EMA line causing the Fisher indicator and the EMA 5-6 Crossover indicator to temporarily reverse.
  • The Fisher indicator should print positive lime bars.
  • The EMA 5-6 Crossover indicator should print an arrow pointing up.
  • Enter a buy order on the confirmation of the conditions above.

Stop Loss

  • Set the stop loss on the fractal below the entry candle.

Exit

  • Close the trade as soon as the Fisher indicator prints a negative red bar.
  • Close the trade as soon as the EMA 5-6 Crossover indicator prints an arrow pointing down.

Fisher 5-6 Trend Forex Trading Strategy

Fisher 5-6 Trend Forex Trading Strategy 2

Sell Trade Setup

Entry

  • The 50 EMA line should be sloping down.
  • Price should be below the 50 EMA line.
  • Price action should be creating lower swing highs and swing lows.
  • Price should retrace toward the 50 EMA line causing the Fisher indicator and the EMA 5-6 Crossover indicator to temporarily reverse.
  • The Fisher indicator should print negative red bars.
  • The EMA 5-6 Crossover indicator should print an arrow pointing down.
  • Enter a sell order on the confirmation of the conditions above.

Stop Loss

  • Set the stop loss on the fractal above the entry candle.

Exit

  • Close the trade as soon as the Fisher indicator prints a positive lime bar.
  • Close the trade as soon as the EMA 5-6 Crossover indicator prints an arrow pointing up.

Fisher 5-6 Trend Forex Trading Strategy 3

Fisher 5-6 Trend Forex Trading Strategy 4

Conclusion

This trading strategy is a high probability trading strategy that trades on trending market conditions. It allows traders to consistently profit from the market based on win rate.

The key to trading this strategy successfully is by looking for the right trending market that is clearly trending and respecting the 50 EMA line as a dynamic support or resistance, while at the same time is not overextended.

Traders should also follow the rules regarding the entry signal as this would indicate that the retracements are deep enough to warrant a trade. Avoid trading setups where the trend strength is slowing down or setups where the signals have not retraced deep enough.

Traders who could identify the right market condition to trade on and the right setups to take should do well with this strategy.

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