Many new traders are lured into the trading business because of the perception that making money through forex trading is very easy. This is very understandable because it is common to hear of overnight millionaires who made their fortunes through forex trading. There are traders who used to be deep in debt that became millionaires just within a year.
Making money through forex trading can be quick. However, the notion that it is very easy is not true. In fact, although there are stories of traders who made their fortunes very quick, there are also traders who lost their fortunes overnight.
Risk is an inherent characteristic of forex trading. Traders who quickly make money or lose money trading the forex markets are the ones who take on so much risk. It is fine if you are one of the lucky ones who would become a millionaire in a short time. However, if fortunes do not favor you, then you might be losing your hard-earned money.
Wise traders on the other hand take on a different route. They would often choose to get their money management systems right so that they could stay longer in the market even during drawdown periods.
The most common thing about traders who could stay long enough in the market is that they are willing to put in the effort. They are willing to grind day in and day out.
Strive Super Trend is a strategy that traders could use to grind through the market. They could use it to spot good opportunities in the market, which could help them slowly reach their goals.
Super Trend
Super Trend indicator is a trend following indicator designed to help traders identify trend direction and trend reversals more effectively.
It is a custom indicator which is derived from the Commodity Channel Index (CCI). It basically identifies the direction of the trend by aligning the CCI trend across different timeframes.
The Super Trend indicator plots a line on the price chart to indicate trend direction. This line follows price action quite closely.
To indicate trend direction, the line changes its color whenever the trend reverses. If the trend is bullish, the indicator would plot a deep sky-blue line, while if the trend is bearish, the line would plot a yellow line.
The Super Trend indicator is geared towards the short-term trend or momentum of a market. As such, it is very responsive to price movements. This makes it an excellent trend reversal entry signal. Traders could simply use the changing of the color of the line as a confirmation of a probable trend reversal.
Awesome Oscillator
The Awesome Oscillator (AO) is a momentum technical indicator used to identify trend direction and trend bias. It measures momentum by comparing the difference between average historical prices compared to recent historical prices.
AO is calculated by subtracting the 34 period Simple Moving Average (SMA) from the 5 period Simple Moving Average (SMA). However, instead of using the usual close of each period, it uses the median of each candle.
Based on this concept, the Awesome Oscillator could be considered as an indicator based on the crossover of modified moving averages. As such, it makes the AO an excellent tool to confirm trend direction and anticipate possible trend reversals.
The AO plots histogram bars that oscillate around zero. Positive bars indicate a bullish trend bias, while negative bars indicate a bearish trend bias.
Trend strength or momentum can also be identified using the AO. Positive green bars indicate a strengthening bullish trend, while positive red bars indicate a weakening bullish trend. On the other hand, negative red bars indicate a strengthening bearish trend, while negative green bars indicate a weakening bearish trend.
Trading Strategy
To trade this strategy, first we must identify trend direction. To do this, we will be using a 50 period Exponential Moving Average (EMA). Trend direction will be based on where price action is in relation to the 50 EMA, as well as the slope of the 50 EMA line.
The AO will be used to confirm the trend. Trending markets will be based on whether the AO is constantly making positive or negative bars for q prolonged period.
As soon as the trend is confirmed, we will then wait for an entry signal coming from the Super Trend indicator. This is based on the changing of the color of the Super Trend indicator. The entry signals should be in confluence with a momentum candle, which should confirm the indicator signal.
Indicators:
- 50 EMA
- Super Trend
- Awesome
Preferred Time Frames: 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
- Price action should be above the 50 EMA line.
- The 50 EMA line should slope up.
- The Awesome Oscillator should be plotting positive bars.
- Price should retrace towards the 50 EMA line causing the Super Trend line to temporarily reverse.
- The Super Trend line should change to deep sky-blue.
- The corresponding candle should be a bullish momentum candle.
- Enter a buy order upon the confirmation of these conditions.
Stop Loss
- Set the stop loss on the support level below the entry candle.
Exit
- Close the trade as soon as the Super Trend line changes to yellow.
Sell Trade Setup
Entry
- Price action should be below the 50 EMA line.
- The 50 EMA line should slope down.
- The Awesome Oscillator should be plotting negative bars.
- Price should retrace towards the 50 EMA line causing the Super Trend line to temporarily reverse.
- The Super Trend line should change to yellow.
- The corresponding candle should be a bearish momentum candle.
- Enter a sell order upon the confirmation of these conditions.
Stop Loss
- Set the stop loss on the resistance level above the entry candle.
Exit
- Close the trade as soon as the Super Trend line changes to deep sky-blue.
Conclusion
This trading strategy is a standard trend following strategy with a relatively high degree of accuracy. This is because the indicators used are reliable high probability indicators used by many profitable retail traders.
Like most trend following strategies, this strategy would only work when used in the right market condition. As such, traders should learn to identify trending markets based on price action movement.
Traders should also avoid trading setups which are near the end of a trend, or setups which are trading against a major support or resistance line based on the higher timeframes.
If used wisely, this trading strategy could help traders become consistently profitable.
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