There are several ways to trade the forex market. Different types of strategies and techniques that can prove to be profitable over the long run if done right. Some types of strategies rely on high yielding trade setups while others rely on high probability trades. The former bank on high risk-reward ratios while the latter rely on higher win rates. Personally, I prefer high probability trades because it allows for consistent profits rather than waiting for that one big profitable trade that can make or break your trading account.
Among the different types of trading strategies, trend following strategies tend to be the types of strategies that allow for high probability trade setups. If you come to think of it, this concept would be very intuitive. Trend following strategies imply that you are trading with a long-term trend. These long-term trends if observed on a higher timeframe are markets with strong momentum. In such type of market it would be wise to trade with the flow of the market’s momentum rather than against it. Trading against it could mean that you attempting to pick the tops or bottoms of a very strong trend. On the other hand trading with the direction of such momentum means that it is natural for the market to carry your trade to your desired profitable exit.
However, even though trend following strategies tend to provide high probability trade setups, we should not blindly throw a trade in the middle of the trend without thought as to where the optimal trade entry is. We would still try to find those optimal entry spots even in a high probability trending market. These optimal entry points are typically found on pullbacks. Trading in the correct trend direction could still provide a profitable trade. However, trading on pullbacks is like asking for a discount on a market that is more likely going to move in your direction.
Let us learn how we could make use of the Super Trend indicator in order to identify high probability trend following setups while using engulfing price patterns on retracements in order to enter trades on optimal price points.
Super Trend Indicator
Table of Contents
- 1 Super Trend Indicator
- 2 Engulfing Pattern
- 3 Conclusion
The Super Trend indicator is a very popular trend following indicator which is derived from the use of the Average True Range (ATR).
The ATR is an indicator that measures the average range of price within a range of candles. Many traders use the ATR to identify trend direction and its probable trend reversal.
The concept of trend direction based on the ATR is based on the direction of the most recent price movements in relation to a multiple of the ATR. A commonly used multiplier would be three. So, for example price moves up by more than three times the ATR, the market would be considered to be in an uptrend. If price moves down by more than three times the ATR, then the market is considered to be a downtrend.
The Super Trend indicator simplifies this process by plotting a line on the price chart opposite the direction of the trend. This represents the distance that price action must breach in order for a trend reversal based on the concept of the ATR trend to be considered. The line shifts towards the opposite side of price action whenever price closes on the opposite side of the Super Trend line.
This version of the Super Trend indicator plots a sky blue colored line below price action to indicate an uptrend, and a tomato colored line above price action to indicate a downtrend.
It also shows the direction of the trend based on the Super Trend line among different timeframes on the upper left corner. This allows traders view the direction of the trend on multiple timeframes in just one glance and opt to trade where there is a confluence of trend.
In this strategy we will be using the Super Trend line as a trend direction filter. We will use it to identify the direction of the trend which would tell us the direction of our trades. We will then wait for price action to retrace towards it and wait for an opportunity to trade using the Engulfing pattern.
An engulfing pattern is a reversal candlestick pattern which forms whenever a candle is followed by large candle, the body of which completely overlaps the body of the first candle.
This type of pattern is a strong reversal pattern. This tells us that the market quickly pushed against the momentum of the first candle, which is why the second candle completely overlaps the first candle.
Although this type of reversal candlestick pattern does tend to produce high probability setups, it is still best to wait for a confirmed entry. In the case of a bullish engulfing pattern, the confirmation of the reversal would be when price breaches the high of the second candle. In a bearish engulfing pattern, a drop below the low of the second candle would confirm a bearish reversal.
Bullish Super Trend Engulfing Pattern Retracement Setup
- Price Action should be above the Super Trend line.
- The Super Trend line should be sky blue.
- Price Action should be in an uptrend pattern based on price swings.
- Price should retrace near the Super Trend line.
- A bullish engulfing pattern should form.
- Set a buy stop order above the high of the bullish engulfing pattern.
- Set the stop loss below the pattern
- Close the trade as soon as the Super Trend line shifts above price action and changes to color tomato.
Bearish Super Trend Engulfing Pattern Retracement Setup
- Price Action should be below the Super Trend line.
- The Super Trend line should be color tomato.
- Price Action should be in a downtrend pattern based on price swings.
- Price should retrace near the Super Trend line.
- A bearish engulfing pattern should form.
- Set a sell stop order below the low of the bearish engulfing pattern.
- Set the stop loss above the pattern
- Close the trade as soon as the Super Trend line shifts below price action and changes to sky blue.
Trend following strategies can provide an excellent way to start trading the forex market.
The first thing that the trader has to answer is the method in which trends will be identified. In this case we are using the Super Trend line as it is a very reliable way to identify trends.
Then, we decide whether we will be trading based on retracements or breakouts. Retracements or pullbacks would provide the more optimal way to trade the market.
Then, the trade entries. In this case we are using an engulfing pattern setup, which is also a reliable reversal pattern.
You may practice this type of setup and test whether this would work for you.
Forex Trading Strategies Installation Instructions
Super Trend Retracement Engulfing Rejection 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.
Super Trend Retracement Engulfing Rejection 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 Super Trend Retracement Engulfing Rejection Forex Trading Strategy – MT5?
- Download Super Trend Retracement Engulfing Rejection 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 Super Trend Retracement Engulfing Rejection Forex Trading Strategy – MT5
- You will see Super Trend Retracement Engulfing Rejection 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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