Octopus Trend Forex Swing Trading Strategy

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Octopus Trend Forex Swing Trading Strategy

Crossover strategies are probably one of the most popular types of trading strategies among beginning traders. However, there are certain stigmas that come with crossover strategies.

Some traders may think that crossover strategies are just for “beginners”. While there are many new traders who get attracted to the simplicity of crossover strategies, many professional traders use it as well, either as a confirmation of a trend, a precision entry strategy on a lower timeframe, or whatnot.

Others believe that crossover strategies have already lost its edge. To some extent, certain crossover strategy setups might not be working as well as they used to. However, trading strategies should not be used as a “one size fits all” strategy. Each strategy work best for different market conditions. There are certain indications and hints pertaining to the type of condition that the market is in that should be considered but are beyond moving average crossovers.

The Octopus Trend Forex Swing Trading Strategy is a crossover strategy that is based on momentum. This strategy uses a reliable crossover setup and is confirmed by complementary indicators and momentum.

Octopus Indicator

The Octopus indicator is a custom momentum indicator which helps traders identify trend direction. This indicator points the direction of the trend by displaying bars. These bars change colors depending on the direction of the trend. Green bars indicate a bullish trend direction, while red bars indicate a bearish trend direction.

There are two variations of the Octopus indicator – Octopus 1 and Octopus 2. Both indicators are somewhat similar. The only difference is the parameters used within the indicators. Octopus 1 tends to be more stable, while Octopus 2 tends to be more responsive to trend changes. In a typical trend reversal scenario, it is usually the Octopus 2 indicator that would reverse first

However, there are instances where the trend reversal signals coming from the two indicators are very close. These scenarios usually occur when there is a strong momentum shift that caused the trend reversal.

Trading Strategy

This trading strategy is a basic crossover strategy using a 13-period Exponential Moving Average (EMA) and a 55-period Exponential Moving Average (EMA).

This crossover trade setup is much like the usual crossover strategies. It produces gains and losses from time to time. However, when filtered using the two Octopus indicators and a momentum candle, trade setups tend to be more reliable and would often result in profits.

For a crossover to be considered as a valid trade setup, there should be a big momentum candle that initiated the trend reversal.

To confirm the trend reversal based on momentum, the two Octopus indicators should also agree with the trend direction as indicated by the moving average crossover and the momentum candle.

Trades are then kept open until one of the two Octopus indicators would reverse. This would usually be the Octopus 2 indicator. This allows traders to enter the trade when the trend reversal is confirmed and exit the trade early when signs of another trend reversal starts to show.

Indicators:

  • 13 EMA
  • 55 EMA
  • octopus_1 (default settings)
  • octopus_2 (default settings)

Preferred Time Frames: 4-hour and daily charts

Currency Pairs: major and minor pairs

Trading Session: Tokyo, London and New York sessions

Buy Trade Setup

Entry

  • Price should cross above both the 13 EMA and the 55 EMA.
  • The 13 EMA should cross above the 55 EMA indicating a bullish trend reversal.
  • A bullish momentum candle should be observable on the chart.
  • The Octopus 1 and Octopus 2 indicators should be displaying green bars indicating a bullish trend.
  • These bullish trend reversal signals should be closely aligned.
  • 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 one of the Octopus indicators would start displaying a red bar.

Octopus Trend Forex Swing Trading Strategy

Octopus Trend Forex Swing Trading Strategy2

Sell Trade Setup

Entry

  • Price should cross below both the 13 EMA and the 55 EMA.
  • The 13 EMA should cross below the 55 EMA indicating a bearish trend reversal.
  • A bearish momentum candle should be observable on the chart.
  • The Octopus 1 and Octopus 2 indicators should be displaying red bars indicating a bearish trend.
  • These bearish trend reversal signals should be closely aligned.
  • 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 one of the Octopus indicators would start displaying a green bar.

Octopus Trend Forex Swing Trading Strategy3

Octopus Trend Forex Swing Trading Strategy4

Conclusion

This simple crossover strategy is one which could return decent profits when used right.

Crossover strategies on their own are not as reliable as it used to be. However, occasionally, it allows traders to catch a huge trend, which makes traders profitable.

This strategy however uses a couple of indicators and a momentum candle to confirm such trend reversal. This greatly improves the reliability of this crossover strategy while maintain a decent reward-risk ratio.

Traders who would want to maximize gains on trades that result in trends should keep their trades open until one of the indicators show signs of a possible reversal. However, another good option for exiting trades using this strategy is by setting a fixed take profit target based on a multiple of the risk placed on the stop loss. This provides a fixed reward-risk ratio that is positive.

This strategy would also require active trade management as trends may reverse any time without warning. This includes moving stop losses to breakeven and trailing stop losses to protect profits.

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