Trend reversal strategies are probably the more difficult types of trading strategies. This is because trend reversals assume that traders can correctly guess when the trend would end and precisely time the reversal. It is very difficult to guess the reversal of a market trend. Trends usually have momentum. Like everything else, it is difficult to stop an object with momentum behind it. However, it could be done.
How can you intelligently time the reversal of a market? Tools can help you determine whether the market is nearing its high or low. This is because the momentum tends to slow down as the market trend approaches its high or low point. Think of it this way: if you were to throw a ball in the air, you would be swinging behind the ball. However, as the ball approaches its climax, the vertical momentum it has to slow down slows. The next thing you would observe is that the ball would completely reverse its fall and accelerate. The same goes for retail. When the price peaks, the momentum subsides and then reverses. The key is in having a tool that will allow us to judge whether the price is approaching or peaking. If the trend reverses, we will use another tool to assess whether the price reversal is accelerating.
The Forex cash flow reversal trading strategy uses a medium reversal indicator to assess whether the price is peaking and a trend following indicator to confirm the trend reversal.
Cash flow index
The Money Flow Index (MFI) is an oscillating indicator that identifies oversold and overbought market conditions. It is a limited oscillating indicator that ranges from zero to 100. Traders usually use the 20-80 range as their normal range. Whenever the MFI line falls below 20, traders usually view the market as oversold. On the other hand, the market is typically seen as overbought even when the MFI line goes above 80.
The MFI is similar to many other oscillating indicators such as the Relative Strength Index (RSI). They share the same characteristics and are limited oscillating indicators that allow traders to read overstretched market conditions. However, you postpone the inclusion of volume on one thing. While the RSI calculates oscillations solely on the basis of price movements, the MFI includes the volume in its calculation. We could say that the MFI is very similar to a volume weighted RSI.
When looking at trends and trend reversals, dynamics are very important. Momentum is made up of two variables, volume and price, or the speed of price changes. Given that volume should be taken into account when looking at the momentum, the MFI could provide a more complete picture than the momentum-based oscillating indicator.
The Fisher indicator
The Fisher indicator is a trend-following oscillation indicator that uses histogram bars to show the trend. Positive histograms are lime colored and indicate bullish market condition, while negative histograms are colored red and indicate bearish market condition.
The Fisher indicator is a probability-based indicator. It is assumed that the probability that the price will go in a certain direction is not the same. The price is believed to move in the direction of the trend more often than against it. The Fisher indicator is usually a very good indicator for determining the general medium-term trend direction. It doesn't change too often, but it doesn't lag too far behind compared to other indicators. With the right parameters, the Fisher indicator usually shows reversal signals around the same time that momentum candles break diagonal supports and resistances that are typical in trending market conditions.
This trading strategy is a trend reversal trading strategy that is triggered by an overstretching of a trend.
To identify possible setups for medium reverse postings, we use the Money Flow Index indicator. Trading configurations that are not triggered by an overstretched market condition according to the Money Flow Index should be filtered out. Bullish trend reversals should begin when the market is in an oversold condition, while bearish trend reversals should begin with overbought conditions.
When the overstretched conditions are met, we use the Fisher indicator to wait for confirmation of a trend reversal. Input signals are generated by crossing the histogram bars or changing their color. The trade direction should coincide with the direction of the MFI mid-reversal trade build.
- ExtMFIPeriod: 14
- Applied price: 5
Time window: 1-hour, 4-hour, and daily charts
Currency pairs: Major and minor pairs
Trading session: Meetings in Tokyo, London and New York
Buy trade setup
- The MFI line should drop below 20, indicating an oversold market
- The Fisher indicator should be above zero and change to lime, indicating a bullish trend reversal
- These reversal conditions should be somewhat close to each other
- Place an order to buy at the confluence of the above conditions
- Set the stop loss to the support level below the entry candle
- Once the Fisher indicator turns red, close the trade
Sell Trade Setup
- The MFI line should be above 80, which indicates an overbought market situation
- The Fisher indicator should go below zero and change to red, indicating a bearish trend reversal
- These reversal conditions should be somewhat close to each other
- Enter a sell order at the confluence of the above conditions
- Set the stop loss to the resistance level above the entry candle
- Close the trade as soon as the Fisher indicator changes to lime
The Forex cash flow reversal trading strategy is an excellent trading strategy that combines both medium reversal and momentum trading.
Medium reverse trading strategies tend to generate higher returns once the reversal leads to a new trend. But how can we anticipate medium reverse trade configurations that could lead to a new trend? This trading strategy does it. The MFI indicator anticipates medium reversals and the Fisher indicator confirms the new momentum-based trend.
Forex Trading Strategy Installation Instructions
The forex trading strategy for reversing cash flow is a combination of Metatrader 4 (MT4) indicator (s) and template.
The essence of this forex strategy is to transform the accumulated historical data and trading signals.
The forex trading strategy for reversing the flow of money provides the ability to see 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 the Money Flow Reversal Forex Trading Strategy?
- Download Money Flow Reversal 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
- Choose the chart and time frame in which you want to test your forex strategy
- Right click on your trading chart and hover over “Template”.
- Move right to select the forex trading strategy for cash flow reversal
- You will see that the forex trading strategy to reverse the flow of money is 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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