Trend following strategies are usually great. It enables traders to maximize profits on winning trades as traders can follow trends from start to finish. This results in trading with very high returns relative to the risk that is placed on the trade.
However, there are many cases where trend-following entries would fail. This is because trend strength is not taken into account. Trends usually last longer when there is a dynamic behind them. Without them, however, trends tend to be short-lived. After a few small expansion phases, trends could reverse without momentum.
However, Heiken Ashi's directional cross forex trading strategy is a strategy that identifies trend strength or dynamics. In addition, there is a high likelihood of trend reversals being investigated using a custom indicator that shows the trend smoothly.
Average directional movement index
The ADX or Average Directional Movement Index is an indicator that determines both the trend direction and the trend strength. Two directional movement indicators (DMI) are used for this. One is positive and the other is negative. Whenever these two moving averages intersect, it indicates a possible trend reversal.
In this setup, the positive DMI is colored green, while the negative DMI is colored orange red. Whenever the positive DMI crosses the negative DMI, it is considered an indication of a bullish crossover. On the other hand, if the negative DMI exceeds the positive DMI, this could be viewed as a possible retrograde transition.
Heiken Ashi smoothed indicator
The Heiken Ashi Smoothed indicator is a trend following indicator derived from the standard Heiken Ashi candles and the moving averages. While the standard Heiken Ashi candles are basically candles that show the high and low price, but only change colors when the trend changes, the Heiken Ashi Smoothed indicator is very different. In fact, it is more of a moving average variation than a candlestick.
The Heiken Ashi Smoothed indicator is a smoothed version of the Heiken Ashi. However, this version does not reflect the price at all. What it does, however, is that it averages the price similar to a moving average. It is usually based on an Exponential Moving Average (EMA).
The Heiken Ashi Smoothed indicator, as the name suggests, is characteristically smooth. It usually doesn't have sudden changes of direction. Instead, it only changes direction when the trend appears to have changed significantly. If you were to watch it closely on the price chart, the Heiken Ashi Smoothed indicator is really good at identifying the medium term trend direction.
The Heiken Ashi Directional Cross Forex trading strategy is based on the confluence of the Average Directional Movement Index (ADX) and the Heiken Ashi Smoothed indicator.
The ADX is designed to help us select entries with a swing behind the crossovers. We tend to achieve a higher profit rate through trades that have a dynamic behind the trend change.
By adding the Heiken Ashi Smoothed indicator, which is by nature a high probability trend indicator, we get an even better probability of winning.
The key to this strategy is to do trend reversals where both indicators reverse at the same time. The distance between the signals of both indicators should be close enough for us to consider trading.
- Average Directional Movement Index (ADX)
Time window: 1-hour, 4-hour, and daily charts
Currency pair: Major and minor pairs
Trading session: Tokyo, London and New York
Buy (Long) Trade Setup
- The ADX's green + DMI line should be above the orange-red -DMI line, indicating a possible bullish trend reversal
- The Heiken Ashi Smoothed indicator should change to blue, indicating a possible bullish trend reversal
- These two trend reversal signals should be somewhat aligned
- Place an order to buy at the confluence of the above conditions
- Set the stop loss under the Heiken Ashi Smoothed indicator
- Once the Heiken Ashi Smoothed indicator turns red, close the trade, indicating a possible bearish reversal
- Close the trade as soon as the green + DMI line of the ADX indicator drops below the orange-red -DMI line, which indicates the possible end of the uptrend
Sell (Short) Trade Setup
- The orange-red DMI line on the ADX should be above the green + DMI line, indicating a possible bearish trend reversal
- The Heiken Ashi Smoothed indicator should change to red, indicating a possible bearish trend reversal
- These two trend reversal signals should be somewhat aligned
- Enter a sell order at the confluence of the above conditions
- Set the stop loss above the Heiken Ashi Smoothed indicator
- Close the trade as soon as the Heiken Ashi Smoothed indicator turns blue, indicating a possible bullish reversal
- Close the trade as soon as the orange-red -DMI line of the ADX indicator drops below the green + DMI line, which indicates the possible end of the bearish trend
This strategy, which is based on a high probability trend probability indicator, the Heiken Ashi Smoothed indicator, is inherently a high probability trading strategy. By adding the ADX indicator that takes dynamics into account, this strategy works even better.
This strategy would also work best when traded on support and resistance reversals. Having some knowledge of price movement, support and resistance would certainly help improve trading performance with this strategy.
Forex Trading Strategy Installation Instructions
Heiken Ashi Directional Cross Forex Trading Strategy is a combination of Metatrader 4 (MT4) indicator (s) and template.
The essence of this forex strategy is to transform the accumulated history data and trading signals.
Diriken Ashi Directional Cross Forex Trading Strategy provides the ability to spot various peculiarities and patterns in price dynamics that are invisible to the naked eye.
Based on this information, traders can assume further price movements and adjust this strategy accordingly.
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How do I install Heiken Ashi Directional Cross Forex Trading Strategy?
- Download Heiken Ashi Directional Cross Forex Trading Strategy.zip
- * Copy mq4 and ex4 files to your Metatrader directory / Experts / Indicators /
- Copy the tpl file (template) into your Metatrader directory / templates /
- Start or restart your Metatrader client
- Select the chart and timeframe in which you want to test your forex strategy
- Right click on your trade chart and hover over "Template".
- Move right to select Heiken Ashi Directional Cross Forex Trading Strategy
- You will see Heiken Ashi Directional Cross Forex Trading Strategy available on your chart
* Note: Not all forex strategies come with mq4 / ex4 files. Some templates are already built into the MT4 indicators of the MetaTrader platform.
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