There are hundreds of Forex strategies based on fundamental and technical analysis. Some traders...
There are hundreds of Forex strategies based on fundamental and technical analysis. Some traders prefer developing trading systems, based on one or two simple basic indicators, some traders like complex combined tools.
It is thought that multiple lines in the chart distract and over-charge traders, but I will prove that it is not so by practical examples.
Form this review, you will learn about Spud stochastic thread theory, Rainbow range indicator, with controversial indicators like Alligator, AntiAlligator, and the strategies based on them.
When “multiple” is good. Examples of original strategies, redundant with indicators. Tell me, how many indicators do you think are appropriate to trade a relatively successful intraday or long-term Forex strategy?
I mean, can you, for example, apply three moving averages, but with different periods; or you must always have a set of compatible trend and forecasting indicators and confirming oscillators?
I am sure there won’t be a single answer, although I’d like to learn the readers’ opinions in the comments. From what I found on the Internet:
It makes no sense to trade only with one indicator, also applying patterns, important levels, and candlestick analysis. Such strategies are originally loss-making
An optimal combination of indicators includes lagging and leading ones. They form the golden mean.
Multiple Indicators For Intraday Trading Are Bad For A Few Reasons
It is simply useless. You can simultaneously attach stochastically, RSI, and other oscillators, and then get surprised, “These are all oscillators, indicating overbought and oversold zones, why are they sending different signals?”
The answer is logical; a particular oscillator is selected for each market situation, so it is useless to combine them all.
It is difficult to analyze. The more different lines are in the chart, the more you need to focus (it's about intraday trading, where signals often appear), and the more you are likely to miss a signal or make an error. Many traders even prefer arrows and sound alerts, not to monitor the screen all the time.
I think all these ideas are rather controversial, so, I again welcome the readers to discuss it in the comments.
I myself will offer a few interesting tools and strategies based on them, which apply multiple basic indicators and I will prove by real examples with screenshots that strategies with multiple indicators can well be rather efficient.
Best Forex Strategies With Multiple Indicators
Another question. Tell me how you see developing an indicator of technical analysis?
After all, to develop it you need to not only have experience in trading but also to understand mathematics and statistics, not to mention writing the code and correcting it.
In fact, things are much easier. There's never a new fashion but it's old. And the old was far not always developed for Forex. For example, a stochastic oscillator was designed to calculate the amount of lime in steelmaking.
It was applied to Forex trading much later. Many complex indicators are based on moving averages, stochastic, and so on. The strategies, presented below, are no exception.
1. Spud Stochastic Thread Theory
This trading system was offered on one of the trading forums in 2007. It is interesting because it offers a little unusual way to use a stochastic oscillator.
Strategies with two oscillators are quite common. But developers went even further, they decided to use multiple oscillators with different parameters of period %D, but with the default value of Slow and %К.
The basic strategy applies 18 stochastic oscillators (of course you can change their number on your own), which should splice in a visual “rope”, finally forming its peak at the high or the low.
You need 18 stochastic %K lines from 6 to 24 (6, 7, 8...24) in the same timeframe. The principle is that in most cases the stochastic lines will form a web, that is be moving in different directions.
The recommended timeframes are 1H and 4H. You might apply M30, but not a shorter one, because you may fail to assess the market sentiment and mistake a signal.
All stochastic lines conventionally come in three groups:
- Lower time frame stochastics LTFS (%К: 6-13);
- Base Stochastic, the BS line with %К = 14;
- Higher Time Frame Stochastics HTFS (%К: 15-24).
The screenshot above shows that stochastics gathered below level 15 into a single line, a red dot is painted at zero level, and stochastics started exiting the bottom zone (the levels of the candlestick, preceding the signal one, are in the yellow box on the left). The signal candlestick is highlighted in pink.
2.Requirements For Opening A Short Position:
- Stochastic lines gathered together making a kind of rope. That is their values are roughly equal.
- Most of the oscillators (the more, the better) at the signal candlestick are above level 85.
- Cycle Koufer Extremus paints a red dot near level 100.
Open a position when oscillators exit the overbought area. The strategy is remarkable because it allows picking up a strong directed price movement.
If you have a loss from a few consecutive trades (it happens sometimes), it is covered by one profitable trade.
And one more tip: you’d better avoid trading at the time of news releases because of volatility. The best time to trade is day sessions, as the trading flat is often at night.
3. Rainbow – Universal Indicator For Any Timeframe
The Rainbow indicator is a good example of how one basic tool helps to develop a comprehensive graphic analysis of the Forex market. It is also convenient from a visual point of view.
Based on it, you can come up with more than one strategy, but that is difficult for beginners. Rainbow is ideal for any currency pair, as well as for different timeframes.
It is based on exponential moving averages (more than 60 curves, forming separate areas), according to which you can develop strategies from scalping to long-term ones.
To make Forex trading with the indicator more convenient, it is important to choose the right colors for the areas, so that they won’t merge with each other, being a contrast. In the basic version of Rainbow, the colors are following:
- Yellow. ЕМА is built with the value Period from«2» to «15» with increment «1» (2, 3, 4...15).
- Blue. ЕМА is built with the value Period from «17» to «41» with increment «2» (17, 19, 21...41).
- Green. ЕМА is built with the value Period from «44» to «74» with increment «3» (44, 47, 50...74).
- Red. ЕМА is built with the value Period from «78» to «122» with increment «4» (78, 82, 86...122).
- Pink. ЕМА is built with the value Period from «125» to «200» with increment «5» (125, 130, 135...200).
So numerous moving averages, broken down into particular areas allow you to see the entire depth of the market, ranging from short-term to long-term trends.
The yellow area is a short-term trend that may be of interest to scalpers. The blue area presents short-term trends for intraday trading.
The green area is for those who prefer middle-term trading, the red one is for long-term traders, and the pink one will be interesting for those who have been investing with a horizon of several years.
Practical application of the indicator for beginner traders.
No random movements of the moving averages in all areas. EMA should be as close to each other as possible, they shouldn’t cross or look like sharp waves.
Each zone in the signal area should have a roughly equal thickness, that is, the channels’ borders should not be visually narrowed or broadened.
The moving averages should be facing in the same direction. Once the chaotic meeting of the zones turned into a directed row in the chart, you can enter a trade.
A buy signal: the zones are arranged from top to bottom in order, they have listed bulleted list above (starting with the yellow zone at the top).
A sell signal: the zones are arranged from bottom to top in the same order (yellow zone is the bottom one).
The interweaving of moving averages means uncertainty (volatility or flat). To make sure, you can add an oscillator to the indicator or use a candlestick signal as a confirmation.
For example, if the price has been trading under the moving averages for a relatively long time and then goes up, breaking through even the slowest moving averages, it means the breakout and it makes some sense to enter along.
The timeframe, suitable for the strategy, can be any, but it is better to use timeframes, starting from Н1 and longer.
When all the lines meet at the same point or with a minimum distance in-between, the market is trading flat. It follows the meeting of the lines, suggesting the need to exit the trades.
The lines diverge after that flat, indicating the start of a new trend. The wider is the divergence, the stronger is the trend. If the blue line is at the bottom, the trend is upwards, if it is at the top, the trend is downward.
The longer Alligator lines aren’t meeting (i.e. moving relatively in parallel), the longer the trend is.
Forex trading strategies, based on Alligator, are sometimes criticized for being late. That is why, you must be very careful: monitor the price direction all the time and try to pick up long-lasting trends (here, fundamental analysis may be of use).
The recommended timeframes are H4 and longer.
Alligator is thought to be quite a popular indicator, so, I’ll use its mirroring, AntiAlligator, to describe a practical trading strategy with real screenshots.
4. AntiAlligator
AntiAlligator indicator is the opposite of Bill Williams’ Alligator. It is also a trend indicator, but, based on the description, recommends doing the opposite.
What is it for? It is a rhetorical question. I do really wish to learn the opinions of readers and advanced traders. You will find the link to the AntiAlligator template below, compare the two indicators, and do share your opinions.
Alligator-based strategies recommend to Sell, while Anti Alligator will give a signal on Buy. It is said that AntiAlligator signals are not late, but I’d argue with that in practice.
AntiAlligator based strategy also uses a complementary tool TrendWave indicator. It is an oscillator for day trading strategies that is thought to be rather controversial.
It uses simple and exponential moving averages, which indicate the start of a strong trend. The opponents of MA convergence-divergence theories avoid this indicator, but, again, there are no perfect indicators. So, let’s download the templates here and study the strategy.
5. Trading Conditions:
- Timeframe – M15. Unlike Alligator, you can trade in short-term timeframes here.
- Currency pair – EUR/USD
- AntiAlligator settings: Jaws Period (13), Jaws Shift (8), Teeth Period (8), Teeth Shift (5), Lips Period (5), Lips Shift (3). Type MA (2), Type Price (4), Level 0.001
- НTrendWave settings: WavePeriod (set the period according to timeframe) – 10, AvgPeriod (period for both moving averages) -21, Levels: -50, 50, -60, 60.
6. Requirements To Open A Long Position:
- TrendWave paints a blue dot in the chart below level – 50.
- AntiAlligator paints a green column at the same candlestick.
We enter a trade at the next Japanese candlestick. Confirming signals will be a blue dot below level -60 and several consecutive green columns. We set a stop at a distance shorter than 20 pips, after a profit of 10 pips is reached, we fix 50% of the trade, and the rest is protected with a trailing stop
It is clear from the screenshot that the indicator is painting the column when the price is at the lowest level, the Alligator’s mouth is opened as wide as possible.
Another moment: the first column looks bigger than the second one, but just a few consecutive columns send a strong signal, irrespective of the last column size. There is no third column, so we enter a trade.
Requirements To Open A Short Position:
- TrendWave paints a blue dot above level 50.
- AntiAlligator paints a red column at the same candlestick.
- We enter a trade at the next candlestick.
Here, I’d like to note a remarkable fact. Although AntiAlligator is the opposite of Alligator, you can enter trades in both directions with it. After all, there are different versions of oscillators, aren't there?
Why not. These systems are simple trailing strategies, so, download indicators, install them in MT4, test on demo accounts and share your reasoned opinion in the comment section.
Conclusion. The feature of all these Forex strategies is that they don’t send many signals. And it is clear why. Nevertheless, they will suit day trading strategies. We just recommend applying them to multiple currency pairs. Remember, there are no perfect trading systems. (Source)
