“Buy low, sell high!” This is the mantra of every trader. In the case of a short trade, “Sell high, and cover low,” also applies. However, in most cases traders find themselves buying high and selling low. As a result, they end up losing money instead of gaining profits from the forex market. This is often the case when traders try to chase trends and momentum. They end up buying when price is near the peak or shorting when price is near the bottom.
Buying low and selling high is usually done when traders successfully trade trend reversal setups. This is because trend reversal setups aim to buy forex pairs when they are at the bottom and sell them when they are at the peak. Trend reversal setups when successfully done are usually very fulfilling. Traders could look at their charts and see how price bounced off a level that they have anticipated and see price move in their direction giving them huge profits.
However, trend reversal strategies are easier said than done. Trend reversal setups entail trading against an existing trend. This means that you are trading against the current market sentiment. For this reason, trend reversal trading strategies are not for the faint of heart. Trend reversal traders are usually fine with losing a few here and there for the chance of winning it big in the long run.
Heiken Ashi RSI Forex Trading Strategy is a systematic trend reversal strategy that produces trade setups during breakouts of an opposing support or resistance line and confirms trade setups based on a couple of trend and momentum indicators.
Heiken Ashi Candlesticks
The Heiken Ashi Candlesticks is a trend following indicator which also serves as a new method of plotting price candles.
Heiken Ashi literally means “average bars” in Japanese. The Heiken Ashi Candlestick is basically a candlestick which has a modified open and close based on the average historical price movements. The result is a candlestick that changes color only when it detects a trend or momentum reversal on the short-term.
The Heiken Ashi Candlesticks are very useful in determining short-term trends and momentum reversals. Traders can use the changing of the color of the Heiken Ashi Candlestick bars as a trend reversal entry signal. It also quite useful when trading setups where the highs and lows of each candle is necessary so that traders can identify price action based on the swing highs and swing lows, or traders in cases wherein traders need to plot supports and resistances based on swing highs and swing lows.
Many Heiken Ashi Candlestick traders also use it as a systematic means to trail their stop losses and protect their profits while at the same time allowing their trades to run for more profits.
Relative Strength Index
The Relative Strength Index (RSI) is one of the most popular technical indicators used by many traders. This is because the RSI has a variety of uses which is useful for mean reversal, momentum and trend following traders.
The RSI is an oscillator type of technical indicator which plots a line that oscillates within the range of 0 to 100. It also typically has markers at level 30, 50 and 70.
Trend direction is usually based on where the RSI line is generally moving in relation to the 50 level. If the RSI line is above 50, then the trend bias is bullish. If the RSI line generally stays below 50, then the trend bias is bearish.
The 30 and 70 levels are usually used to identify oversold and overbought market conditions. If the RSI line drops below 30, then the market might be oversold. If the RSI line breaches above 70, then the market might be overbought.
On the other hand, momentum traders view things differently. A breach above 70 might mean a bullish momentum picking up, while a drop below 30 might mean a bearish momentum gaining strength.
Some traders also add levels 45 and 55 to confirm a trend. If the RSI line is generally above 50 and finds support at 45, then the market is in a bullish trend. If the RSI line is generally below 50 and finds resistance at 55, then the market is in a bearish trend.
Heiken Ashi RSI Forex Trading Strategy is a trading strategy that puts some structure into how a typical trend reversal strategy is traded. It makes use of a couple of indicators which helps give clarity to traders, allowing them to see and confirm if a trend has actually reversed based on their thesis.
To identify the trend direction and potential trend reversal, we will be using the 50-period Exponential Moving Average (EMA). Trend reversals will be based on price action crossing over the 50 EMA line with strong momentum.
The trend reversal signal based on the crossing over of price action and the 50 EMA line should also coincide with a breakout from diagonal support or resistance line, which was formed from a prior trend.
We then confirm the momentum of the reversal based on the color of the Heiken Ashi Candlestick bars.
The new trend direction is also confirm based on the RSI line breaching above 55 or dropping below 45.
- Heiken Ashi
- 50 EMA
- Relative Strength Index
Preferred Time Frames: 1-hour and 4-hour charts
Currency Pairs: FX majors, minors and crosses
Trading Sessions: Tokyo, London and New York sessions
Buy Trade Setup
- A diagonal resistance line should be observable.
- Price action should breach above the resistance line and the 50 EMA line.
- The Heiken Ashi Candlesticks should be plotting spring green bars.
- The RSI line should breach above 55.
- Set a buy stop order at the high of the Heiken Ashi Candlestick upon the confirmation of these conditions.
- Set the stop loss on the support level below the entry candle.
- Close the trade as soon as the RSI line hooks back to 50.
Sell Trade Setup
- A diagonal support line should be observable.
- Price action should drop below the support line and the 50 EMA line.
- The Heiken Ashi Candlesticks should be plotting red bars.
- The RSI line should drop below 45.
- Set a sell stop order at the low of the Heiken Ashi Candlestick upon the confirmation of these conditions.
- Set the stop loss on the resistance level above the entry candle.
- Close the trade as soon as the RSI line hooks back to 50.
This trading strategy is a good trend reversal strategy that could complement the traditional trend reversal setups which are usually based on breakouts or breakdowns of a diagonal support or resistance line. Some traders also use crossovers of price action and moving average lines or crossovers of moving average lines alone. This strategy also incorporates crossovers.
What makes this strategy unique is that it confirms trend reversal based on momentum and trend using two complementary indicators. Traders can have a significantly improved accuracy if they could incorporate these confirmations in a trend reversal setup.
Forex Trading Strategies Installation Instructions
Heiken Ashi RSI 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.
Heiken Ashi RSI Forex Trading Strategy provides an opportunity to detect various peculiarities and patterns in price dynamics which are invisible to the naked eye.
Based on this information, traders can assume further price movement and adjust this strategy accordingly.
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How to install Heiken Ashi RSI Forex Trading Strategy?
- Download Heiken Ashi RSI Forex Trading Strategy.zip
- *Copy mq4 and ex4 files to your Metatrader Directory / experts / indicators /
- Copy tpl file (Template) to your Metatrader Directory / templates /
- Start or restart your Metatrader Client
- Select Chart and Timeframe where you want to test your forex strategy
- Right click on your trading chart and hover on “Template”
- Move right to select Heiken Ashi RSI Forex Trading Strategy
- You will see Heiken Ashi RSI Forex Trading Strategy is available on your Chart
*Note: Not all forex strategies come with mq4/ex4 files. Some templates are already integrated with the MT4 Indicators from the MetaTrader Platform.
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