Div Stoch Signals Forex Trading Strategy
Table of Contents
- 1 Div Stoch Signals Forex Trading Strategy
- 1.1 The 2 Moving Average Signal Indicator
- 1.2 Trading Strategy Concept
- 1.3 Buy (Long) Trade Setup
- 1.4 Sell (Short) Trade Setup
- 1.5 Conclusion
Technical indicators are usually the basis for the setups in algorithmic trading. This allows the trader or the algorithm to make buy, sell, open or close decisions based on quantifiable numbers instead of the whims of a trader. By doing so, decision making is less affected by the emotions and psychology of the trader but is instead a result of a set of rules.
In this strategy we will explore a trading setup based on two custom indicators, 2 Moving Average Signal and Div-Stochv5 indicators.
The 2 Moving Average Signal Indicator
The 2 Moving Average Signal Indicator is a custom indicator that generates entry signals based on two moving averages. It does this using the traditional cross over of two moving averages as the basis for the entry signal.
It also conveniently prints arrows at the point where the crossover occurred. If the faster moving average crosses below the slower moving average, a sell signal is generated by printing a downward pointing arrow. If the faster moving average crosses above the slower moving average, then a buy signal is generated by printing an upward pointing arrow.
The parameters of the signal could be modified. The number of periods used for the moving average could be changed as well as the type of moving average to be used.
Div-Stochv5 Custom Indicator
The Div-Stochv5 custom indicator, as the name would suggest, is based on stochastics, although it also differs greatly from the traditional stochastic oscillators. It doesn’t have the traditional two lines crossing over each other and the overbought and oversold areas as markers.
The Div-Stochv5 indicator has histograms and lines that change colors based on whether the indicator is bullish or bearish. If the indicator is bullish, the histograms printed are green. This is then confirmed by the line touching the bottom and changing color to yellow. On the other hand, if the indicator is bearish, it starts printing red histograms which are then followed by the lines touching the bottom and changing color to blue.
Trading Strategy Concept
In this strategy, the 2 Moving Average Signal indicator will be primarily used as a filter instead of as an entry signal. This is because the parameters that we will be using in this strategy is that of a fast moving average. Having a faster moving average as a signal typically generates many signals but not all will be of high quality.
Instead, we will be using it as a filter to enter the trade. We will be looking for a condition wherein the 2 Moving Average Signal indicator has just recently printed an arrow, indicating that based on the indicator, we could be at the start of a trending move. This also coincides with having the moving averages stacked correctly. Then, we wait for the Div-Stochv5 indicator to give us the actual entry signal by changing the histogram and line color.
In a bullish trade setup, the 2 Moving Average Signal indicator will have the faster moving average above the slower moving average and have a blue upward pointing arrow. Then, the Div-Stochv5 indicator should print a green histogram and change the line color to yellow.
In a bearish trade setup, the 2 Moving Average Signal indicator will have the faster moving average below the slower moving average and print a tomato colored arrow pointing down. The Div-Stochv5 indicator then should print a red histogram followed by the line changing to color blue.
- 2 Moving Average Signal
- ExtPeriodFastMA: 5
- ExtPeriodSlowMA: 10
Timeframe: 1-hour, 4-hour and daily charts
Currency Pair: any
Trading Session: any
Buy (Long) Trade Setup
- The fast moving average (green) of the 2 Moving Average Signal indicator should cross above the slow moving average (brown)
- A blue arrow pointing up should be printed
- The Div-Stochv5 indicator should print a green histogram
- The Div-Stochv5 indicator’s line should change color from blue to yellow
- Set the stop loss at the support below the entry candle
- Close the trade as soon as the 2 Moving Average Signal indicator prints a tomato colored arrow pointing down
Sell (Short) Trade Setup
- The fast moving average (green) of the 2 Moving Average Signal indicator should cross below the slow moving average (brown)
- A tomato colored arrow pointing down should be printed
- The Div-Stochv5 indicator should print a red histogram
- The Div-Stochv5 indicator’s line should change color from yellow to blue
- Set the stop loss at the resistance above the entry candle
- Close the trade as soon as the 2 Moving Average Signal indicator prints a blue arrow pointing up
This is a simple strategy that combines a moving average crossover type of entry with the entry signals generated by the Div-Stochv5 indicator.
The Div-Stochv5 indicator tends to not change color too often. This causes it to generate lesser false entry signals. On the other hand, by using the 2 Moving Average Signal as the exit basis, we get to close the trade before price totally reverses.
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