Trading the market is much like doing any buy or sell business. The only difference is that transactions do not have to be face to face and are done at a click of a button. It is much like any business where traders by and sell goods or commodities for a profit, only that things are done way faster that it would have been done physically. It is just fitting to apply the same business sense in forex trading.
Let us say you were into buying and selling houses, and you knew that the trend of the price of a house is going up. Would you be buying a house to sell for a profit, or would you be selling the units that you have now? Most likely you would be buying houses for a profit in the future. The question is at what price should you buy? You would not go out and buy just any house that you see at whatever price it is offered, right? You would look for the right house at the right price to gain maximum profits.
The same applies in forex trading. In a bullish trending market, it is always best to take buy trades. However, you should not be just hitting that buy button any time. You buy as the market dips and sell as the market peaks.
Woodies Half Trend Bounce Forex Trading Strategy is a trend following strategy that takes trades on retracements to get the best price possible.
Woodies CCI
The Woodies CCI indicator is a custom indicator which is based on the Commodity Channel Index (CCI) indicator.
The classic CCI indicator is an oscillator which compares the current price to the average price over a period of time. This allows traders to identify if price is moving higher or lower compared to the historical price. It also allows traders to identify if price is significantly higher or lower, which might mean price is overextended and is about to reverse.
Woodies CCI is a modified version. It is composed of two oscillator lines. One represents the short momentum bursts, while the other represents a relatively longer trend. The longer-term line is connected to histogram bars, which allows traders to visually identify if price has reversed or not. Positive bars indicate a bullish trend, while negative bars indicate a bearish trend.
Half Trend Indicator
The Half Trend indicator is a trend following indicator that helps traders identify the direction of the short- to mid-term trend.
It is plotted as a line on the price chart that follows price action quite closely. The line changes color depending on the direction of the trend. Bullish trends are represented by a blue line, while bearish trends are represented by a red line.
The Half Trend indicator can be used as a trend-reversal entry signal. Traders could take trades as soon as the trend reverses in the direction of their trade setup.
Trading Strategy
Moving averages are excellent locations to look for trend reversals. In fact, significant moving averages tend to act as a dynamic area of support or resistance.
The 50-bar Exponential Moving Average (EMA) is one of the moving average lines that work very well as a dynamic support or resistance. Price tends to respect this line during a trending market condition, bouncing off it after retracements. This strategy takes trades as price bounces off the area of the 50 EMA line using the confluence of the Woodies CCI and the Half Trend indicator.
Indicators:
- 50 EMA (Green)
- HalfTrend-1.02 (default setting)
- WoodiesCCI (default setting)
Currency Pairs: major and minor pairs
Preferred Time Frames: 30-minute, 1-hour and 4-hour charts
Trading Sessions: Tokyo, London and New York sessions
Buy Trade Setup
Entry
- Price should be above the 50 EMA line.
- The 50 EMA line should be sloping up.
- Price should be creating higher swing highs and swing lows.
- Price should retrace towards the area near the 50 EMA line.
- The Half Trend indicator should temporarily change to red.
- The Woodies CCI should temporarily print negative bars.
- Enter a buy order as soon as the Woodies CCI prints a positive bar and the Half Trend indicator changes to blue.
Stop Loss
- Set the stop loss on the fractal below the entry candle.
Exit
- Close the trade as soon as the Woodies CCI bars become negative.
Sell Trade Setup
Entry
- Price should be below the 50 EMA line.
- The 50 EMA line should be sloping down.
- Price should be creating lower swing highs and swing lows.
- Price should retrace towards the area near the 50 EMA line.
- The Half Trend indicator should temporarily change to blue.
- The Woodies CCI should temporarily print positive bars.
- Enter a sell order as soon as the Woodies CCI prints a negative bar and the Half Trend indicator changes to red.
Stop Loss
- Set the stop loss on the fractal above the entry candle.
Exit
- Close the trade as soon as the Woodies CCI bars become positive.
Conclusion
Trading on retracements is a proven and effective way to trade the forex markets. It is one of the very few ways traders could take trades with a positive expectancy.
However, there are still traders who seem to miss time trading on retracements. This is because timing the market is one of the most difficult aspects of trading. You may get trend direction right but miss time the trade, and you still get a loss.
This strategy provides a way for traders to time the market based on a non-biased trigger. Having a confluence of two high probability indicators allow traders to take the trade with more confidence. Although there could be a few pips left on the table because indicators are a bit lagging, you are trading that for more consistency.
Use the 50 EMA line to find a trending market. As soon as you find a market that is appropriate for a retracement entry, you could use this strategy to profit from the market.
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