Trend continuation strategies can be simple yet effective trading strategies which can provide traders consistent profits when used in the correct market environment.
There are several components when trading a trend continuation strategy. One would be identifying whether the market is trending on the long-term or not.
Second would be identifying the general trend direction based on the long-term trend.
Third would be identifying the actual trend continuation signals.
This strategy provides a systematic method which can help traders identify these three components of a trend continuation setup.
Swing Line Indicator
Table of Contents
The Swing Line Indicator is a trend following technical indicator developed by Ron Black. This indicator was developed to help traders objectively identify the direction of the trend or momentum.
This indicator plots a line which is derived from a formula that uses the average of the highs and the lows for n periods as its main variable. It then plots a line, based on its underlying formula, which characteristically moves in a step or staircase like manner.
The color of the line it plots changes depending on the direction of the trend. It plots a lime green line to indicate a bullish trend direction, and a pale red violet line to indicate a bearish trend direction.
This indicator is more suitable for identifying the short-term trend direction. As such, it is best to use this indicator as a trend reversal signal indicator used in confluence with the direction of a longer-term trend.
This indicator can also be used as a trend direction filter. Traders can opt to trade momentum based trade signals trading only in the trend direction indicated by the Swing Line Indicator.
Ichimoku Kinko Hyo – Kumo
The Ichimoku Kinko Hyo is a trend following technical indicator which can identify trends in various time horizons. Traders can observe the short-term trend, mid-term trend, and long-term trend using this indicator because this indicator has multiple lines which can represent various trend horizons.
The Ichimoku Kinko Hyo indicator is composed of five lines – the Tenkan-sen, Kijun-sen, Chikou Span, Senkou Span A, and Senkou Span B lines.
The Tenkan-sen, also called the conversion line, is the median of price over a nine candle window. This line can be used as a short-term support and resistance level, as well as a trend reversal signal indicator when paired with the Kijun-sen.
The Kijun-sen, or base line, is the median of price over the last 26 periods. It can also be used as a dynamic support and resistance level, as well as a trend reversal signal line when paired with the Tenkan-sen.
The Chikou Span, also known as the lagging span, is the current periods closing price plotted 26 candles back. This line is often used to help traders avoid choppy price action.
The Senkou Span A, or leading span A, is calculated as the average of the Tenkan-sen and Kijun-sen plotted 26 periods ahead. This line forms the faster moving line of the Kumo.
Senkou Span B, or leading span B, is the median of price over the past 52 periods plotted 26 periods ahead. This line is the slower moving line of the Kumo.
The Kumo, which translates to “cloud”, represents the long-term trend direction. Traders can easily identify the long-term trend based on how the Senkou Span A and B lines interact. The long-term trend is bullish whenever the Senkou Span A is above the Senkou Span B and price action is generally above the Kumo. Inversely, the long-term trend is bearish whenever the Senkou Span A is below the Senkou Span B and price action is generally below the Kumo. The Kumo is also shaded to indicate the long-term trend direction. It is shaded sandy brown to indicate a bullish long-term trend, and thistle to indicate a bearish long-term trend.
In this strategy, we will be focusing on the Kumo as this component of the Ichimoku Kinko Hyo can help traders identify the long-term trend.
Trading Strategy Concept
This trading strategy has a simple trend following strategy concept. It basically trades trend continuation signals whenever the short-term trend and the long-term trend agrees pointing the same direction.
We will be using the Kumo to identify the long-term trend. We will filter out trade signals that go against the long-term trend as indicated by the Kumo. We will only take buy trades when the Kumo is sandy brown and sell trades when the Kumo is thistle.
As for our trade entries, we will be using the Swing Line as our short-term trend reversal entry signal. We will use the changing of the color the Swing Line as our entry signal whenever the signal it produces is inline with the trend direction indicated by the Kumo.
These trade signals typically develop whenever price action pulls back after a price swing in the direction of the long-term trend whenever the market has a clear long-term trend.
Buy Trade Setup
- Price action should be above the Kumo.
- The Senkou Span A should be above the Senkou Span B.
- The Kumo should be shaded sandy brown.
- Wait for price to pullback causing the Swing Line to temporarily change to pale red violet.
- Open a buy order as soon as the Swing Line changes to lime green.
- Set the stop loss on the support below the entry candle.
- Close the trade as soon as the Swing Line changes back to pale red violet.
Sell Trade Setup
- Price action should be below the Kumo.
- The Senkou Span A should be below the Senkou Span B.
- The Kumo should be shaded thistle.
- Wait for price to pullback causing the Swing Line to temporarily change to lime green.
- Open a sell order as soon as the Swing Line changes to pale red violet.
- Set the stop loss on the resistance above the entry candle.
- Close the trade as soon as the Swing Line changes back to lime green.
This trading strategy can be an effective trend continuation strategy.
Using the Kumo would simplify the process of identifying the long-term trend direction. It can also help traders avoid non-trending markets as price action would usually crisscross the Kumo lines, going in and out of the Kumo when the market is not trending.
The Swing Line simplifies the process of identifying the trend continuation signals with less lag allowing traders to profit on the price swings in the direction of the trend.
Forex Trading Strategies Installation Instructions
Kumo Swing Line Forex Trading Strategy for 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.
Kumo Swing Line Forex Trading Strategy for 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 Kumo Swing Line Forex Trading Strategy for MT5?
- Download Kumo Swing Line Forex Trading Strategy for 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 Kumo Swing Line Forex Trading Strategy for MT5
- You will see Kumo Swing Line Forex Trading Strategy for 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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