Heiken Ashi Ichimoku Trend Reversal Forex Trading Strategy

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Heiken Ashi Ichimoku Trend Reversal Forex Trading Strategy

Most forex traders make money whenever the market starts to trend. This is because trending markets implies strong volatility moving generally in one direction. Traders make money whenever there is sufficient market movement or volatility. However, price would have to move in the direction predicted by the trader instead of moving back and forth within a short range. Trading in the direction of the trend allows for huge profits because it provides both aspects of volatility and trade direction.

Trend reversal strategies are probably some of the highest yielding trading strategies. Trend reversals strategies implies that traders are able to anticipate that the trend direction is about to reverse. Traders who are were able to enter a trade as the trend is reversing or near the beginning of the new trend could make huge profits because they could hold on to their trades in profit as price is moving in the direction of their trades. Traders who could manage their trades efficiently could hold on to their trades until the end of the trend.

Trend reversal strategies could be very profitable. However, anticipating trend reversals could prove to be very difficult. Traders can make use of high probability trend following technical indicators in order to anticipate such trend reversals. With the right combination of trend following technical indicators, traders can systematically identify trend reversals based on clear signals.

Heiken Ashi Smoothed

Heiken Ashi Smoothed is a high probability trend following technical indicator which is based on the concept of Heiken Ashi Candlesticks and moving averages.

“Heiken Ashi” literally means average bars in Japanese. This indicator is rightfully called as such. This is because the Heiken Ashi Smoothed indicator plots bars that indicate trend direction based on the average price of historical price movements.

Trend direction is indicated based on the color of the bars. Lime bars indicate a bullish trend, while red bars indicate a bearish trend.

Unlike its counterpart, the Heiken Ashi Smoothed indicator computes for the average price movements, while the Heiken Ashi Candlesticks plots price candles with modified open and close based on the average historical price. This makes the Heiken Ashi Smoothed indicator move characteristically more closely to moving averages, with smooth reversals yet still maintain being very responsive to price action movements. This makes its trend indications less susceptible to false trend reversal signals, but at the same time less lagging compared to most moving average lines.

Alternative Ichimoku

Alternative Ichimoku is a long-term trend following technical indicator which is based on the Ichimoku Kinko Hyo indicator. However, instead of including all the lines that are included in the Ichimoku Kinko Hyo system, the Alternative Ichimoku indicator focuses solely on the long-term trend.

The Alternative Ichimoku indicator plots two lines with the space between the two lines shaded with vertical lines. This creates an area which resemble the “Kumo” or cloud in the Ichimoku Kinko Hyo system. The interaction between the two lines indicate the direction of the long-term trend.

If the faster moving line is above the slower line, the market is considered to be in an uptrend. However, if the faster line is below the slower line, the market is in a downtrend.

A blue line is also plotted inside the shaded area. The blue would be close to the faster moving line if the trend is gaining momentum and would move closer to the slower line if the trend is slowing down.

Traders can use the crossing over of the two lines as an indication of a trend reversal. This is should be in conjunction with other momentum indicators.

Traders can also use the long-term trend indication of the Alternative Ichimoku to filter out trades that are moving against the direction of the trend.

Stochastic Oscillator

The Stochastic Oscillator is a popular and widely used momentum indicator which is a family of the oscillator type of indicators. It is used to identify momentum direction as well as overbought and oversold conditions which are price from mean reversals.

It plots two lines that oscillate within the range of 0 to 100. Trend direction is identified based on how the two lines interact. A bullish momentum is indicated if the faster line is above the slower line, while a bearish momentum is identified if the faster line is below the slower line.

The Stochastic Oscillator also has markers at level 20 and 80. Stochastic lines dropping below 20 indicate an oversold condition, while lines breaching above 80 indicate an overbought condition. Both conditions are prime for mean reversals. Crossovers occurring on these areas tend to have a high probability of resulting in an actual momentum reversal on price action.

Trading Strategy

Heiken Ashi Ichimoku Trend Reversal Forex Trading Strategy is a trend reversal strategy based on the confluence of trend reversal signals coming from the Heiken Ashi Smoothed indicator and the Alternative Ichimoku indicator, as well as the momentum indication of the Stochastic Oscillator.

Trend direction on the Heiken Ashi Smoothed indicator is simply based on the changing of the color of the bars. However, price action should also start to separate from the bars indicating that momentum is strengthening.

The Alternative Ichimoku signal is simply based on the crossover of the two lines. The blue line should also stick close to the faster line of the pair indicating a strong momentum on the reversal.

Lastly, the Stochastic Oscillator lines will be used to identify momentum direction. This is simply based on how the two lines overlap or crossover.

Indicators:

  • Heiken_Ashi_Smoothed
    • MA Period: 12
  • Alternative_Ichimoku
  • Stochastic Oscillator
    • %K Period: 19
    • %D Period: 6
    • Slowing: 9

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 Heiken Ashi Smoothed bars should change to lime with the price candles moving above the bars.
  • The faster line of the Alternative Ichimoku indicator should cross above the slower line with the blue line staying close to the faster line.
  • The faster solid line of the Stochastic Oscillator should be above the slower dotted line.
  • Enter a buy order on the confirmation of these conditions.

Stop Loss

  • Set the stop loss on a support below the entry candle.

Exit

  • Close the trade as soon as the Heiken Ashi Smoothed bars change to red.

Heiken Ashi Ichimoku Trend Reversal Forex Trading Strategy

Heiken Ashi Ichimoku Trend Reversal Forex Trading Strategy 2

Sell Trade Setup

Entry

  • The Heiken Ashi Smoothed bars should change to red with the price candles moving below the bars.
  • The faster line of the Alternative Ichimoku indicator should cross below the slower line with the blue line staying close to the faster line.
  • The faster solid line of the Stochastic Oscillator should be below the slower dotted line.
  • Enter a sell order on the confirmation of these conditions.

Stop Loss

  • Set the stop loss on a resistance above the entry candle.

Exit

  • Close the trade as soon as the Heiken Ashi Smoothed bars change to lime.

Heiken Ashi Ichimoku Trend Reversal Forex Trading Strategy 3

Heiken Ashi Ichimoku Trend Reversal Forex Trading Strategy 4

Conclusion

This trend reversal strategy based on the confluence of three technical indicators could work very well in markets which has a strong tendency to trend.

The combination of the three indicators is synergistic.

The Alternative Ichimoku represents the long-term trend.

The Heiken Ashi Smoothed indicator represents the main trend direction.

The Stochastic Oscillator represents the short-term momentum.

Having all three aligned produces a high probability trend reversal signal which has potential to result in a high yielding trade.


Forex Trading Strategies Installation Instructions

Heiken Ashi Ichimoku Trend 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.

Heiken Ashi Ichimoku Trend 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 Heiken Ashi Ichimoku Trend Reversal Forex Trading Strategy?

  • Download Heiken Ashi Ichimoku Trend 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 Heiken Ashi Ichimoku Trend Reversal Forex Trading Strategy
  • You will see Heiken Ashi Ichimoku Trend 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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