Forex Strategies

Oracle Crossover Forex Trading Strategy

January 24, 2019

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Oracle Crossover Forex Trading Strategy

There are many ways to make money out of trading. Many swear by indicators as the Holy Grail of trading, while others profess their belief on price action. In any case, as long as you’ve done your due diligence on any of the two, studied it, and backtested it, any of these could work. It all depends on you.

Price Action versus Technical Indicators

While I do see the merits of price action trading, I think both are good if it fits the personality of the trader. Some traders would like to think they are making the decision based on their own analysis, while others prefer to be told what to do. This is what indicators do, it tells you what to do, or at least gives you a hint what to do. Price action trading on the other hand makes some traders think they are deciding on their own because no indicator is telling them what to do. However, often price action traders look for certain candlestick pattern or some other price action pattern or characteristic to tell them what to do. In a sense it is still the same as having an indicator, only that this time the signals are a little more subjective. In a sense, you are your own indicator.

The advantage of using price action is because of its subjectivity, there are certain market characteristics and conditions that could only be observed, but never statistically quantified, price action traders have the discretion to trade based on their observations of the market. However, it requires a lot of practice and screen time, and often it is unreliable.

On the other hand of the spectrum, technical indicators are more quantifiable and objective. Indicators plot histograms, lines, oscillators, etc. based on numbers. Numbers that are derived from price. Because of this quantifiable and objective approach, we could use indicators to trade based on statistics. Trading now becomes more of a data science rather than intuitive decision making.

The Case for the Oracle Indicator

Now, there are many indicators out there. The basics such as stochastics, moving averages, MACD, etc. However, there are also traders and programmers who would try to break out of the mold and develop their own concept, their very own custom indicators. While others are a bust, some do seem to work.

One of those that I find to have some merit is the Oracle set of indicators. Although they seem to be employing many different custom indicators, let’s take a look at just two of their main indicators. One seems to be based on crossover of moving averages or a derivative of other indicators, while another is a histogram that changes colors. Both seems to be based on momentum and trend direction.

Strategy Concept

As mentioned earlier, there we will be using two indicators from the Oracle system. The first is the Oracle Move indicator. This indicator is composed of two lines. The blue line signifies the faster moving line, while the red line seems to be a tad slower, or probably shifted. As with other moving average crossover strategies, we will be using this indicator in the same manner. A crossover going up points to a buy, while a crossover going down gives us a sell.

The second indicator is the Oracle Strength indicator. This is the histogram type of indicator, which plots blue bars for bullish direction, red for bearish direction, and yellow for indecisiveness.

With the two indicators applied on a chart, your chart should look something like this.

What we will be looking for is a confluence of both indicators, having both indicators pointing the same direction.

Timeframe: any

Currency Pair: any except on 5-minute timeframe and lower, use GBP/USD and EUR/USD instead

Session: any except on 5-minute timeframe and lower, trade on London and New York sessions instead

Buy Trade Setup

Entry

Oracle Move indicator: blue line crosses above the red line
Oracle Strength indicator: histogram turns blue

Stop Loss

Set the stop loss at the low of the candle or below the Oracle Move indicator lines

Take Profit

Set the take profit target at 2x the risk on the stop loss

On this sample trade, the initial thrust of the trend easily reached the take profit target before it had a minor retracement. However, more profits could have been squeezed out of the market if the trade was held until the Oracle Move indicator reversal.

This sample trade’s stop loss is also based on the low of the candle because it is lower than the Oracle Move lines.

Sell Trade Setup

Entry

Oracle Move indicator: blue line crosses below the red line
Oracle Strength indicator: histogram turns red

Stop Loss

Set the stop loss at the high of the candle or above the Oracle Move indicator lines

Take Profit

Set the take profit target at 2x the risk on the stop loss

This sell sample trade on the 1-hour timeframe shows how we could profit on trends based on 1-hour candles.

This time the stop loss was set a little above the Oracle Move indicator. This gave us a little more cushion, but that stop loss wasn’t even challenged a bit. Price did push through with strong momentum and easily hit the profit target. Price then moved sideways for several candles mostly on the Australian and Asian session, after which price continued to drop midday on the London Session. This could have been a bit more of a profit. But it is still better to take profits off the table because we really wouldn’t know if the trend would continue the next day.

Conclusion

The Oracle Crossover strategy is a classic example of how the use of custom indicators could work. Although not all custom indicators work, there are some out there that are gems waiting to be found.

This however is not the Holy Grail. You as a trader are the Holy Grail. It is you who would be doing the hard work, studying and learning.