Trend Mirror Forex Trading Strategy

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Trend Mirror Forex Trading Strategy

Professional basketball players and coaches have something in common with professional traders. It is that they understand that the game they are playing is all about probabilities. This is why teams look for players with high field goal percentages or have great average points per games. Basketball teams have what they call a plus-minus on each players effect on their team. You would also often hear them say that their game is a game of runs. This is why great players keep on shooting the ball even when they are not hot. They know sooner or later it would start to go in.

Trading is also a game of probabilities. It is all about having positive risk-reward ratios or win ratios or a combination of both. As long as this combination results in a positive profit factor, then the strategy should result in profits over the long run. Traders also know that there are drawdown periods which they should weather. So, they try to keep drawdowns to a minimum and then step on the gas as they begin to catch good trending trades. Trading is all about knowing when to cut losses during drawdown periods and losing trades, and when to hold trades when you catch a good trend.

Trend Mirror uses a simple strategy that should allow traders to catch and hold on to good trending market moves, which should result in a good risk-reward ratio.

Ichimoku Kinko Hyo

Only a few technical indicator can claim to be an excellent standalone indicator and a complete system in itself. The Ichimoku Kinko Hyo indicator is one of the few indicators that can work as a standalone indicator. This is because the Ichimoku Kinko Hyo indicator is an indicator which incorporates short-term, mid-term and long-term trends in one system.

The Ichimoku Kinko Hyo indicator plots five lines on the price chart, which represent price action, short-term, mid-term and long-term trends.

The Tenkan-sen or conversion line represents the short-term trend. It is basically then median of price action over the last nine periods. It is calculated by adding the highest high and lowest low over the last nine periods and dividing the result by two.

The Kijun-sen or base line represents the mid-term trend. It plots a line which is the median of price action over the last 26 periods. It is also computed the same way as the Tenkan-sen is only that it gathers data from within 26 periods.

The Kumo is composed of two lines – Senkou Span A and Senkou Span B. The combination and interaction of these two lines represent the long-term trend.

Senkou Span A or leading span A is basically the median of the Tenkan-sen and Kijun-sen lines. It adds both lines and divides the result by two. Then, the result is plotted 26 periods ahead.

Senkou Span B or leading span Bis the median of the last 52 periods. It is computed the same way as the other lines except that it gathers data from 52 periods. Then, the result is also plotted 26 periods ahead.

Chikou Span or lagging span represents the behavior of price action and warns traders against choppy markets. It is based on the closing price of each candle plotted 26 periods back.

Trend Mirror

Trend Mirror is a custom technical indicator which helps traders identify the direction of the trend.

It plots two lines that oscillate from negative to positive or vice versa. One line is red, and the other line is blue. These two lines mirror each other. The market has a bullish bias if the red line is positive and the blue line is negative. If the red line is negative and the blue line is positive, then the market has a bearish bias. Crossovers between the two lines also indicate a possible trend reversal.

Trading Strategy

This trading strategy is a trend following strategy which is based on the confluence of trade signals coming from the Ichimoku Kinko Hyo indicator and the Trend Mirror indicator.

First, we should establish the direction of the long-term trend. This is based on how the Senkou Span A and Senkou Span B overlap.

Then, we wait for a confluence of signals coming from the Trend Mirror and Tenkan-sen and Kijun-sen lines.

On the Trend Mirror, the two lines should become tight indicating a contraction phase followed by an expansion while being in confluence with the direction of the long-term trend.

The Tenkan-sen and Kijun-sen should follow either by crossing over in the direction of the trend or tightening before expanding once again in the direction of the trend.

The two signals should then be confirmed by a momentum candle pushing towards the direction of the trend.

Indicators:

  • Ichimoku Kinko Hyo
  • Trend Mirror
    • Moving Period: 36
    • Moving Shift: 2

Preferred Time Frames: 30-minute, 1-hour, 4-hour and daily charts

Currency Pairs: FX majors, minors and crosses

Trading Sessions: Tokyo, London and New York sessions

Buy Trade Setup

Entry

  • Senkou Span A should be above Senkou Span B.
  • The red Trend Mirror line should be above the blue line.
  • Then Tenkan-sen line should cross above the Kijun-sen line.
  • A bullish momentum candle should appear.
  • Enter a buy order on the confirmation of these conditions.

Stop Loss

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

Exit

  • Close the trade as soon as the Tenkan-sen line crosses below the Kijun-sen line.
  • Close the trade as soon as the red Trend Mirror line crosses below the blue line.

Trend Mirror Forex Trading StrategyTrend Mirror Forex Trading Strategy 2

Sell Trade Setup

Entry

  • Senkou Span A should be below Senkou Span B.
  • The red Trend Mirror line should be below the blue line.
  • Then Tenkan-sen line should cross below the Kijun-sen line.
  • A bearish momentum candle should appear.
  • Enter a sell order on the confirmation of these conditions.

Stop Loss

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

Exit

  • Close the trade as soon as the Tenkan-sen line crosses above the Kijun-sen line.
  • Close the trade as soon as the red Trend Mirror line crosses above the blue line.

Trend Mirror Forex Trading Strategy 3

Trend Mirror Forex Trading Strategy 4

Conclusion

The Ichimoku Kinko Hyo indicator is a great standalone indicator. Many retail and professional traders have proven the Ichimoku Kinko Hyo to be a profitable technical indicator and have made money using this type of trading strategy. Adding the Trend Mirror to the mix adds an additional layer of confirmation which increases the probability of a winning trade.

This type of strategy is one which allows traders to cash in on huge trending market moves. Traders who are able to catch these trends more often stand to earn huge profits from the market.

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