The trading system for MT4 that we are going to present below aims to enter market trends shortly after they begin. Therefore, it is not a counter-trend system, but rather a trend-following system that uses a series of technical indicators to detect changes in market direction as soon as possible.
It is a system based on a series of well-known technical indicators such as the JCCI and moving averages, although there are also modified indicators that were designed for Metatrader 4. Therefore, this methodology can only be applied to this trading platform.
Together, all these tools are designed to analyze the market trend and determine when a change is likely to occur. However, given that the trend changes are not easy to predict and before one occurs there may be false signals, especially in range markets, it is recommended that the trader always apply risk control and monetary management measures that decrease the impact of losing trades.
As always, it is recommended to test this system in a demo account before using it to trade with real money.
Configuration and indicators of this trading system for MT4
- Recommended markets: This system was originally created for the Forex market and the recommended currency pairs are EUR/USD, GBP/USD, USD/JPY, USD/CAD, NZD/USD, and AUD/USD. However, it can also be tested in other markets such as precious metals and indices.
- Recommended time frames: The use of this system is recommended in the higher time frames, from 30 minutes (M30) onwards. As it is a trend-following system that seeks to enter at the beginning of market trends, it may not produce the best results in smaller time frames since in these periods the market behavior is more erratic.
- Recommended market sessions: In general, this strategy can be used in any market session, although it should be taken into account that the market sessions of Europe and the United States have the highest volatility and the strongest movements of the day.
- Recommended Brokers: This is a trading system that can only be used in MT4 as it has indicators that were designed specifically for this application. A recommended Metatrader 4 broker is BlackBull Markets.
- System indicators – This strategy uses the following technical indicators:
- CCI (Commodity Channel Index) indicator with standard configuration.
- 1 exponential moving average (EMA) of 10 periods
- 1 EMA of 5 periods.
- Market Guru indicator (default setting), a modified indicator developed for MT4.
- Fisher RAVI FX indicator (default setting), a modified indicator developed for MT4 based on the Fisher transformation.
The Fisher Fisher RAVI is a technical trend indicator that measures the strength of a trend by comparing the closing price of an asset with its price range and smoothing the results through an exponential moving average.
You can download the modified indicators together with a template to use this Forex trading system on the Metatrader 4 platform (it can only be used on this trading platform) through the following link:
* In this template, the Market Guru and RAVI FX Fisher indicators are displayed in the same window below the price chart. The first indicator shows a histogram with blue and red bars depending on market momentum, while the second shows a black line (moving average). If this configuration is confusing to the trader, you can display both indicators in separate windows.
Rules of this trading system for MT4
This is a mechanical trading system whose entry and exit rules are based on the trading signals of the technical indicators mentioned above and their confluence. The opening of the long and short positions occurs when the indicators show signals in the same direction so that there is a strong confirmation that the market is entering a bullish or bearish phase.
The signals are simple and easy to follow and do not require further interpretation from the trader.
Rules for long positions
A long position is opened when the system indicators show the following signals:
- The Market Guru indicator presents a blue histogram.
- The moving average line of the Fisher RAVI FX indicator is above the upper horizontal line.
- The EMA 5 is above the EMA 10, which is a clear signal of the bullish behavior of the price indicated by the bullish crossing of both moving averages.
- The CCI indicator line is above level 50.
-Stop loss: It is recommended to place a protective stop loss just below the last swing low. A breakout below this level would invalidate the uptrend.
-Take profit: It is recommended to close the position if the market moves in favor 2 to 3 times the stop loss distance with respect to the entry point. In this way, in all trades, we would have a Risk:Benefit of 1:2 or 1:3.
Example
In the previous image, we have an example of a buy signal in the NZD/USD pair. Here are shown all the bullish signals of the indicators detailed in the rules. That is, all indicators show signals that converge and indicate an upward trend. First, the Market Guru indicator shows a blue histogram, while the moving average of the Fisher RAVI FX indicator is above the upper horizontal line. In addition, the EMA 5 crosses above the EMA 10 which confirms the upward momentum of the market, and the CCI is above level 50.
In this case, a position opened with this signal would have obtained a good gain with the subsequent upward movement.
Rules for short positions
A short position is opened when the system indicators show the following signals:
- The Market Guru indicator presents a red histogram.
- The moving average line of the Fisher RAVI FX indicator is below the upper horizontal line.
- The EMA 5 is below the EMA 10, which is a clear signal of the bearish behavior of the price indicated by the bearish crossing of both moving averages.
- The CCI indicator line is below level 50.
-Stop loss: It is recommended to place a protective stop loss just above the last swing high. A breakout above this level would invalidate the downtrend.
-Take profit: It is recommended to close the position if the market moves in favor 2 to 3 times the stop loss distance with respect to the entry point. In this way, in all trades, we would have a Risk:Benefit of 1:2 or 1:3.
Example
In the previous image, we have an example of a sell signal in the NZD/USD pair. All the bearish signals of the indicators detailed in the rules are shown here. In other words, all indicators show signals that converge and indicate a downtrend. First, the Market Guru indicator shows a red histogram, while the moving average of the Fisher RAVI FX indicator is below the lower horizontal line. In addition, the EMA 5 crosses below the EMA 10 which confirms the bearish momentum of the market, and the CCI is below the -50 level.
In this case, a position opened with this signal would have obtained a good gain with the subsequent bearish movement.
Considerations regarding this strategy
- The RAVI FX Fisher is a trend indicator while the Market Guru is a momentum indicator.
- The crossing of the EMA 5 and EMA 10 moving averages tells us if the price action is bullish or bearish.
- The CCI gives us additional confirmation of the previous signals.