Profits are why traders dabble in the currency market. Profits are sought by traders in any market. Forex trading, in particular, is one of the marketplaces with several options. Because of the market’s size, there is enough volatility and volume to move it, and with volatility comes opportunity. The forex market is also a global market that is open more than five days a week, as long as an economy exists that deals in such currencies. This means that possibilities can be found at any time of day. Furthermore, the forex market allows for high leverage, which, when used correctly, allows traders to quickly multiply their earnings.
There are opportunities in the FX market. The challenge is, where do we look for them?
Trending markets and momentum-based reversals are two of the best market circumstances since they provide so many trading chances with huge potential profits. Trending markets make it easier to predict which way the market will move. Momentum allows traders to trade setups with a high probability of price moving strongly in one direction.
Traders who can identify confluences between trend and momentum indicators stand to profit greatly from the market if they know how to trade in such market conditions.
Money Flow Index
The Money Flow Index (MFI) is a traditional technical indicator of the oscillator type. It is generally available on most trading platforms and is accessible to the majority of traders.
The MFI is an oscillator, similar to the Relative Strength Index (RSI), that mimics price movement and aids in identifying trend direction as well as overbought or oversold price conditions.
However, the MFI places a greater emphasis on volume as well as historical price movements. In some ways, the MFI is similar to a volume-weighted RSI.
The MFI plots a line that oscillates between 0 and 100. It also contains indicators at levels 20 and 80. Many traders identify oversold markets when the MFI line falls below 20, and overbought markets when it rises beyond 80. Some traders, however, believe that these levels are 10 and 90.
Some traders include level 50 because it is the range’s median. Some consider the trend bias to be bullish if the MFI line remains above 50, and bearish if it remains below 50.
Slope Direction Line
The Slope Direction Line (SDL) is a moving average-based trend tracking indicator. In fact, the Slope Direction Line is a modified moving average in and of itself.
The location of price action in relation to the moving average line, as well as the slope of the moving average line, is one of the best ways for traders to objectively identify trends.
Price action crossing over a moving average line is a classic trend reversal indication. The shifting of the slope of a moving average line could also be used to identify reversals. Most moving averages, however, are too erratic, making them susceptible to false signals.
The Slope Direction Line seeks to reduce such erroneous signals by changing its algorithm to smooth out the line’s response. As a result, the line is more resistant to irregular price movements.
The color of this version of the Slope Direction Line changes depending on the direction of the trend it detects. A light blue line represents a bullish trend bias, whereas a tomato line represents a bearish trend bias.
The ADX Candles is a trend tracking indicator that uses the Average Directional Movement Index to determine trend direction (ADX).
The ADX Candles indicator superimposes price bars on top of current price bars. The highs and lows are the same. The sole distinction is that the candles’ colors change only when the ADX Candles indicator detects a change in trend direction or momentum using its underlying ADX algorithms.
Dark green bars suggest a bullish trend, whereas lime bars imply a strong bullish trend. Red bars indicate a strong bearish trend, while maroon bars indicate a weak bearish trend.
Money Flow ADX Trend Forex Trading Approach is a hybrid of a trend following and a momentum strategy that employs the aforementioned technical indicators.
To begin, transactions are filtered using the long-term trend. The long-term trend is determined by the price action’s location in relation to the 200 SMA line, as well as its slope.
The changing color of the Slope Direction Line and the crossing of the MFI line over its median are used to confirm trend reversal signals.
The color of the ADX Candles then confirms the trend and momentum.
- ADX Candles
- Big Trend
- Money Flow Index
Preferred Time Frames: 30-minute, 1-hour and 4-hour charts
Currency Pairs: FX majors, minors and crosses
Trading Sessions: Tokyo, London and New York sessions
Buy Trade Setup
- Price action should be above the 200 SMA line.
- The Slope Direction Line should change to light blue.
- The MFI line should cross above 50.
- The ADX Candles should change to lime.
- Enter a buy order on the confirmation of these conditions.
- Set the stop loss on a support below the entry candle.
- Close the trade as soon as the ADX Candles change to maroon or red.
- Close the trade as soon as the Slope Direction Line changes to tomato.
Sell Trade Setup
- Price action should be below the 200 SMA line.
- The Slope Direction Line should change to tomato.
- The MFI line should cross below 50.
- The ADX Candles should change to red.
- Enter a sell order on the confirmation of these conditions.
- Set the stop loss on a resistance above the entry candle.
- Close the trade as soon as the ADX Candles change to dark green or lime.
- Close the trade as soon as the Slope Direction Line changes to light blue.
This trading strategy is a viable trend following strategy that incorporates momentum indicators.
Although this strategy does not have the same level of probability as many trend following strategies, it does produce high-yielding trades that can make or break a trading account.
Traders can use this type of strategy to make some money in the long run.