Winner Mean Reversal Forex Trading Strategy

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Winner Mean Reversal Forex Trading Strategy

Many traders are afraid of too much price fluctuations. However, if you would come to think of it, price fluctuations, otherwise known as volatility, is where traders make money. Without it, traders would have no opportunity to make any profit. Volatility is not what traders should avoid. Instead, they should be looking for it. What they should avoid is trading in a very unpredictable market.

The forex market is one of the most unpredictable tradeable market. This is because any tradeable forex pair is a push and pull of supply and demand coming from two different currencies. It is not a one-sided push or pull like most tradeable instruments.

For example, when trading the USDJPY pair, it could be that USD strength is pushing the pair up. It could also be JPY supply causing the rise in the pair’s price. It could also be the opposite, having a USD supply pulling price down, or JPY strength causing price to drop. It could also be a tug of war between both currencies having strength, and it could also be a weakness in both currencies causing price to be choppy. Many scenarios can play out in the forex market. The key to trading the forex market successfully is in making sense out of the seemingly unpredictable.

One of the most common reasons price would reverse is because the forex pair is either overbought or oversold. This would often cause price to revert back to its mean, otherwise called as mean reversal. In many cases, price would overshoot the average price and extend to the opposite extreme. These situations present opportunities that traders can make money from if they can anticipate it.

Winner Oscillator

The Winner oscillator is a custom technical indicator which helps traders anticipate momentum and short-term trends.

This indicator plots bars that oscillate within the range of 0 to 100. In a normal market condition, the bars would typically stay within the above-mentioned range. However, if the market is overbought, the bars overshoot above 100, and if the market is oversold, the bars drop below 0.

Lime bars moving up indicate a bullish momentum bias. Red bars moving down indicate a bearish momentum bias. The changing of the color of the bars indicate a potential momentum reversal.

Bullish reversals occurring right after the market is oversold tend to have a high bullish mean reversal probability. Bearish reversals occurring right after the market is overbought also tend to have a high bearish mean reversal probability.

Bollinger Bands

The Bollinger Bands indicator is a unique technical indicator because it provides a well-rounded picture of what the market is doing based on a single technical indicator. It provides indications regarding volatility, trend, momentum and overbought or oversold market conditions.

The Bollinger Bands is a channel based technical indicator which is based on a simple moving average. It plots three lines called the bands. The middle band is a Simple Moving Average (SMA), which is set at 20-periods on default. The outer bands are standard deviations from the middle band, which is usually set +/- 2 standard deviations.

The middle line of the Bollinger Bands can be used to identify trend direction much like most moving average lines based on the direction of its slope and the location of price action in relation to it. The trend is bullish if price action is staying on the upper half of the Bollinger Bands and the 20 SMA line is acting as a dynamic support line. Inversely, the trend is bearish if price action is staying on the lower half of the Bollinger Bands and is respecting the 20 SMA line as a dynamic resistance line.

The Bollinger Bands can also be used to identify volatility. An expanding Bollinger Band indicates an increasing market volatility, while a contracting Bollinger Band indicates a decreasing volatility.

The outer lines of the Bollinger Bands could indicate a possible mean reversal or a possible momentum breakout. Price breaking strongly outside of the Bollinger Bands could indicate a strong momentum breakout. On the other hand, price action showing signs of price rejection occurring in the area of the outer bands could indicate a potential mean reversal coming from an overbought or oversold price condition.

Trading Strategy

Winner Mean Reversal Forex Trading Strategy is a simple mean reversal strategy which makes use of the price rejection patterns occurring on the outer Bollinger Band lines and confirmed by the Winner oscillator bars.

Price should first show signs of price rejection on the outer lines of the Bollinger Bands indicated by a reversal candlestick pattern. This could be a simple pin bar pattern, an engulfing pattern, etc.

The Winner oscillator should confirm the overbought or oversold condition based on its bars going over the range.

Trade setups are confirmed as soon as the Winner oscillator bars show signs of reversal.

Indicators:

  • Bollinger Bands
  • Afl_winner

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

  • A bullish reversal candlestick pattern should be formed showing signs of price rejection on the area below the lower Bollinger Band line.
  • The Winner bars should drop below 0.
  • Enter a buy order as soon as a lime Winner bar is plotted.

Stop Loss

  • Set the stop loss on the support below the entry candle.

Exit

  • Close the trade as soon as a red Winner bar is plotted.

Winner Mean Reversal Forex Trading Strategy

Winner Mean Reversal Forex Trading Strategy 2

Sell Trade Setup

Entry

  • A bearish reversal candlestick pattern should be formed showing signs of price rejection on the area above the upper Bollinger Band line.
  • The Winner bars should breach above 100.
  • Enter a sell order as soon as a red Winner bar is plotted.

Stop Loss

  • Set the stop loss on the resistance above the entry candle.

Exit

  • Close the trade as soon as a lime Winner bar is plotted.

 

Winner Mean Reversal Forex Trading Strategy 3

Winner Mean Reversal Forex Trading Strategy 4

Conclusion

This simple trading strategy is a basic mean reversal strategy which makes use of Bollinger Bands price rejection.

Many profitable traders have been using price rejection patterns occurring on the outer bands of the Bollinger Bands as a means to trade the forex market.

This strategy simply adds the confirmation of the Winner indicator to help traders become more accurate when trading this type of strategy.

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