Reversal strategy for every day

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Hello ladies and gentlemen!

Today we will talk about the system that doesn‘t have any unique name. Simple Daily Trend Reversal Trading System. Despite the name, the system is interesting. As you can guess, the system is made for catching reversals of the trend movement, while reversals, as you know, can give high profits. The system became very popular in the ForexFactory forum.

TS Characteristics

Platform: MetaTrader 4
Currency pairs: any
Timeframe: H4-D1
Trading time: round the clock
Recommended brokers: Roboforex, Alpari, AMarkets

Gratitude

First of all, I would like to express my gratitude to the author of the original thread on the ForexFactory forum with the nickname mrdfx. You can get to know the original. There you will find a lot of useful information.

Indicators of the strategy

The system installation as usual. In the terminal, you need to add three non-standard indicators and a special chart template. Files from the archive should be copied to the terminal data directory, which you can open via File - Open Data Folder.


In total, the strategy uses 4 indicators:
1. The standard simple moving average with a period of 15;
2. The TrendLine indicator is a fast and sensitive sliding analog, with a two-color indication of the current direction;
3. ZigZag in the form of arrows of green and red colors;
4. The MBFX indicator in a separate window.


Here we immediately need to pay attention to the fact that the ZigZag arrows are redrawn. Therefore, on the historical chart, you will find only those arrows, after which there was at least some movement, even if not all the strategy rules worked out. That is, the appearance of the arrow does not yet mean that there will be a signal on the TS. For this, four conditions must be met.

Trading rules

The rules of the strategy are very simple, which means that even novices can trade on it.

Terms of purchase:

  • The green Zig Zag arrow appears;
  • The MBFX Timing indicator is in the oversold zone (below 30%) and indicates a green trend;
  • Trend Line indicator shows an upward trend in green;
  • The candle crosses from the bottom to the top and closes above 15 SMA and only if the trade is still confirmed by 3 indicators.

Terms of sale:

  • The red Zig Zag arrow appears;
    • The MBFX Timing indicator is in the overbought zone (above 70%) and indicates a red trend;
    • Trend Line indicator shows a downward trend in red;
    • The candle crosses from top to bottom and closes below 15 SMA and only if the trade is still confirmed by 3 indicators.

In fact, the first signal in the form of an arrow is a warning and speaks about the need to pay attention to the chart: perhaps, after a couple of candles there will be full conditions for entry.

When all three indicators have confirmed the conditions for entry, all are in agreement to buy or sell by the rules, and the candle intersects and closes above or below 15 SMA, it’s time to enter the position.

Stop loss or take profit

Stop-Loss setting options:

Here everything is not so unambiguous. The author of the strategy claims that setting the TP & SL levels is a personal choice for everyone. Alternatively, you can put a stop-loss at the previous high or low. You can use support/resistance levels and a trailing stop. The author himself puts a stop-loss behind the ZigZag arrow. This seems to me the adequate option.

Take Profit setting options:

Take-profit can be a fixed target (50-100 pips) or you can determine the level of take-profit using Fibonacci rollback. The deal can also be closed at the next confirmed signal in order to get the maximum win.

The author of the TS says that he follows the movement of the price and when he sees a change in the price behavior, he leaves the transaction. For example, you can exit when you change the color of the TrendLine indicator to the opposite one. Of course, provided that you already have a profit. But, in the examples, we will use the principle of output on a full-fledged opposite signal.

Traders from the forum apply the following option: when several orders are open and the basket is in profit, they simply close all orders together. The simplest option is to use a ratio, for example, 1 to 2, as the ratio of stop to take-profit.

Additionally

The risk of the strategy is standard, 1-2% per deal. For conservative traders - 0.5%. I remind you, you can calculate the lot by using the lot calculator on our website.

As a recommendation, the author points out that you can enter the market without waiting for the candle to close if it grows rapidly (a big candle) and breaks through a simple moving average.

Further, at the moment of the line entrance, MBFX can go far from overbought/oversold, but this is absolutely normal. In fact, the indicator we need to determine the momentum, so it was clear whether the price is the right “fuse”.

Also, for the accuracy of the entry, people from the forum are waiting for a rollback on the H1 to enter at a better price. That is, when forming a full signal on H4, go to a smaller TF and wait for a rollback.

On ForexFactory, some use a complement to the system: a signal filter based on the Support/Resistance indicator. That is, the input is carried out only near the support or resistance level, where there is a support for the signal. You can also apply this method. In general, this should improve the quality of entries.

Examples

AUDUSD currency pair. A green arrow appeared on the chart. MBFX is in the oversold zone, changes to yellow and leaves, crosses the 30 level up. The TrendLine indicator also changes from red to green.
The signal candle closes above 15 SMA - you can enter the trade.

Stop-loss is set a little lower than the ZigZag arrow, about 38-39 points. In this case, if you wait until the opposite signal, the profit turns out to be small, somewhere around 5 points. If you wait until the TrendLine indicator changes, the profit would be 58 points.

The next full signal gives a profit of 54 points if we went in the opposite transaction. The yield on the TrendLine change gives a potential profit of 90 points.

So far, the difference was not so great, which cannot be said about long-term trends. In this case, if we were waiting for another full signal, the profit would be as much as 480 points. This is provided that the stop-loss deal is about 40 points. When we exit TrendLine, we would get only 24 points.

Consider the example on USDJPY, the daily chart. Stop-loss went pretty high, 200 points. Exiting TrendLine would give us 256 points. If we were waiting for confirmation of a full signal, the position would still not be closed.


But, the previous signal is completely high-grade. Stop-loss is rather big again, 200 points. Getting to a full signal it would be 305 points.

Expert advisor

The strategy advisor actively develops, new versions release almost every week. Therefore, follow the updates in the original thread on ForexFactory.

The Expert Advisor can perform as an auxiliary function in order not to follow the set of pairs and charts manually, or to trade completely automatically. The most effective option is the use of Expert Advisor to receive signals but enter the transaction manually.

The adviser has a lot of settings, here are the most important ones:

  • allowTrading: on / off. The most important parameter that is responsible for permission to trade. If you want an adviser to trade for you, just hang it on one chart and set this setting to ON. The Advisor will open transactions for all pairs indicated in the TradePairs column;
  • soundAlerts: display of sound alerts when a signal appears;
  • emailAlerts: enable email notifications;
  • stopLossAtZigZagArrow: setting the stop-loss on the ZigZag arrow;
  • mindBetween2TradesOnSamePair: the period in minutes between two transactions on one pair;
  • AllowReEntriesOnSamePair: permission to re-enter the same pair;
  • TradePairs: a list of trade pairs;
  • ChartTemplate: the name of the template to be used on the background;
  • MoneyManagement: adjusting the money management in the case of automatic trading;
  • Magic number Buy/Sell: IDs of the adviser’s transactions;
  • BuyComment / SellComment: comment to the order for purchases and sales;
  • MaxSpreadInPips: maximum allowable spread in points;
  • MaxOpenTrades: the maximum number of simultaneous open trades;
  • TrailingMethod … OrderTrail: trailing stop settings;
  • StartHour … TradeOnSunday: setting the trading time, if you, for example, want to disallow night trading or trading on Friday;
  • UseNewsFilter: enable or disable the news filter;
  • OffsetHoursGMT: you can find info about what it is and how to configure it on our website;
  • CloseProfitableTradesBeforeNews: closing of profitable trades before the news;
  • UseSupportResistanceFilter: support/resistance filter - open trades only if they are on one of the support/resistance levels, that is, when the signal has a “support”;
  • SR_ …: timeframe for calculating levels;
  • UseSma200TrendFilter: many use the 200th moving average to determine the general (main) trend (200 is the approximate number of trading days per year);
  • ZigZagCandles / MBFXCandles: the number of candles after which the signal is considered obsolete.

Next are the settings of the ZigZag, MBFX, and Trendline indicators; key levels and the moving average.

In Dashboard mode, the chart displays a color bar showing the current color (direction) of each of the indicators and currency pairs specified in the Expert Advisor settings. The last column displays a full signal to the input.

Conclusion

The system is definitely interesting and very popular. Read what others write, ask questions - the strategy is improved only through a collective “brainstorm”. Do not be embarrassed by its simplicity - in fact, complex systems sometimes do not justify their complexity, and this is where ease is an advantage.

Download strategy files

Regards, Michael

ForexTraderPortal.com

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