CCI Averages Momentum Continuation Forex Trading Strategy for MT5


Trend continuation strategies are often used by most traders because they tends to have a higher win probability given that trades are taken in the direction of the trend. There are two general styles of trading with the trend. One is to wait for a market pullback while the other is to wait for a strong momentum breakout signal indicating the resumption of the trend, both of which could work well. This strategy shows us how we can trade with the long-term trend using the resumption of the momentum right after a market pullback as the entry signal.

Contents

CCI Averages Pre-Filtered Indicator

The CCI Averages Pre-Filtered Indicator is a momentum technical indicator that was developed to help traders identify the direction of the momentum, as well as potential long-term trend changes. It is based on a popular oscillator which is the CCI.

The CCI or Commodity Channel Index, developed by Donald Lambert, is an oscillator type of indicator that is used to help traders assess trend direction, strength, momentum, as well as overbought, and oversold market conditions. It does this with the use of the Typical Price. The Typical Price is the average of the high, low, and close of each price candle. The CCI is calculated by subtracting the Typical Price from a moving average, then dividing the difference by the product of 0.15 and the Mean Deviation.

CCI = (Typical Price – Moving Average) / (0.15 x Mean Deviation

The CCI is a very helpful technical indicator when it comes to pointing out the direction of the trend, momentum, and potential mean reversals. However, it also does have a flaw, which is its susceptibility to false signals whenever there are market spikes or noise. Most smoothing variations often fail to significantly reduce the said false signals.

The CCI Averages Pre-Filtered Indicator addresses the issue of market noise on the CCI indicator by pre-filtering the input price instead of smoothing the calculations after the fact. The resulting oscillator line is less susceptible to market noise.

This indicator plots an oscillator line that oscillates around zero, with markers at +/-100. It also changes the color of the line to lime green whenever it detects a bullish momentum, and orange-red whenever it detects a bearish momentum.

CCI Averages Pre-Filtered Indicator

Ichimoku Kinko Hyo – Kumo

The Ichimoku Kinko Hyo indicator is one of the most complete trend-following indicators because it presents the direction of the trend across different time horizons. This is because it has five elements that represent trends from the short term to the long term. These are the Tenkan-sen, Kijun-sen, Senkou Span A, Senkou Span B, and Chikou Span lines.

The Senkou Span A line, also called the Leading Span A line, is the average of the Tenkan-sen and Kijun-sen lines. It is calculated by adding the Tenkan-sen and Kijun-sen values, dividing the sum by two, then shifting the plotting of its line 26 bars ahead.

The Senkou Span B line, also known as the Leading Span B line, is the median of price over a 52-period window. It is calculated by adding the highest high and lowest low over a 52-bar period, dividing the sum by two, and then again shifting the plotting of its line forward by 26 bars.

The Senkou Span A and Senkou Span B lines together form the Kumo, which is used to represent the direction of the long-term trend.

The Kumo, which translates to “cloud” in Japanese, is aptly named as such because the two lines form a cloud like structure when plotted together. The area within the Kumo is shaded to indicate the direction of the long-term trend. It is shaded sandy brown whenever the Senkou Span A line is above the Senkou Span B line, indicating a bullish long-term trend. Inversely, it is shaded thistle whenever the Senkou Span A line is below the Senkou Span B line, indicating a bearish long-term trend. Traders often use this indication to filter trades based on the direction of the long-term trend.

Ichimoku Kinko Hyo – Kumo

Trading Strategy Concept

This trading strategy is a trend continuation trading strategy that trades on the resumption of the momentum right after a market pullback within a market that is trending on the long-term horizon. This is done using the two technical indicators discussed above, the Kumo and the CCI Averages Pre-Filtered indicators.

The Kumo is used to detect the long-term trend direction. This is based on the general location of price action about the Kumo, as well as the shade on the Kumo. Trades are then filtered based on the long-term trend direction as indicated by the Kumo.

The next step would be to wait for a market pullback near the Kumo. Then, we wait for a signal indicating the end of the market pullback. This signal comes in the form of a momentum signal coming from the CCI Averages Pre-Filtered indicator based on the changing of the color of its line.

Buy Trade Setup

Entry

  • The Kumo should be sandy brown while price action is generally above it.
  • Wait for a pullback near the Kumo.
  • Open a buy order as soon as the CCI Averages Pre-Filtered line changes to lime green.

Stop Loss

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

Exit

  • Close the trade as soon as price action shows signs of a possible bearish reversal.

CCI Averages Momentum Continuation Forex Trading Strategy - Buy Entry

Sell Trade Setup

Entry

  • The Kumo should be thistle while price action is generally below it.
  • Wait for a pullback near the Kumo.
  • Open a sell order as soon as the CCI Averages Pre-Filtered line changes to orange-red.

Stop Loss

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

Exit

  • Close the trade as soon as price action shows signs of a possible bullish reversal.

CCI Averages Momentum Continuation Forex Trading Strategy - Sell Entry

Conclusion

Given that this strategy is a trend continuation strategy that is aligned with the long-term trend, it does have a relatively higher win probability compared to other trading strategies. However, the trade entries it provides may not always be the most optimal trade entry. This is because the trade signals produced often present themselves on a momentum breakout instead of the actual pullback. This results in a lower risk-reward ratio especially if the trade is taken near the end of the trend. On a positive note, momentum signals are often considered more reliable since trading at the apex of the pullback is often difficult to anticipate.


Forex Trading Strategies Installation Instructions

This MT5 Strategy is a combination of Metatrader 5 (MT5) indicator(s) and template.

The essence of this forex strategy is to transform the accumulated history data and trading signals.

This MT5 strategy provides an opportunity to detect various peculiarities and patterns in price dynamics which are invisible to the naked eye.

Based on this information, traders can assume further price movement and adjust this strategy accordingly.

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How to install This MT5 Strategy?

  • Download the Zip file below
  • *Copy mq5 and ex5 files to your Metatrader Directory / experts / indicators /
  • Copy tpl file (Template) to your Metatrader Directory / templates /
  • Start or restart your Metatrader Client
  • Select Chart and Timeframe where you want to test your forex strategy
  • Right click on your trading chart and hover on “Template”
  • Move right to select the MT5 strategy
  • You will see strategy setup is available on your Chart

*Note: Not all forex strategies come with mq5/ex5 files. Some templates are already integrated with the MT5 Indicators from the MetaTrader Platform.

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