LWMA Crossover_Signal Indicator For MT4
The LWMA Crossover_Signal Indicator For MT4 generates buy or sell signals each time a 5 period Linearly Weighted Moving Average (LWMA) crosses above or below a 6 period Linearly Weighted Moving Average (LWMA). The buy signals are depicted by upward pointing Green arrow, while sell signals are represented by downward pointing Red arrows.
Trading ideas with the LWMA Crossover_Signal Indicator For MT4
This indicator is based on the linear weighted moving average indicator. With the linear weighted moving average indicator, there is more emphasis or weighting applied to the most recent price action activity instead of having a moving average indicator that only takes into consideration the historic price movements.
Now with this indicator that we have before us today is one that combines two linear weighted moving averages. Linear weighted moving average crossover indicator is that combines one of a lower period compared to the other linear weighted moving average.
The linear weighted moving average or faster lwma is the signal line and therefore a strategy can be established simply by trading crossovers between the fast and slower linear weighted moving average. Below I have inserted an image of what the indicator actually looks like.
Referring to the image above you can see that the indicator outputs the signals for you in the form of red and green arrows. So when you see a green arrow it signals a buy and when you see a red arrow it signals a sell. In the initial settings of the indicator, you realize that the indicator gives out far too many signals and that is because the period settings are too low and therefore with the low setting the linear weighted moving average activities become more sensitive to the noise in the market which is not what we are looking for.
So to counteract this it is best for us to increase the period values of both the fast and the slow lwma so that it can have less frequent signal and therefore it will start giving us more quality trade setups. In the next image below you can see I made a few changes.
Referring to the image above you can see that I changed the faster linear moving average period to 25 and the slow linear weighted moving average to 27. Furthermore, I have also included in a 50-EMA so that we can be able to distinguish between trend continuation and trend reversal patterns.
But all in all, increasing the period settings of the linear weighted moving averages reduces the number of signals generated therefore it will bear a positive impact on us in terms of unlocking more quality setups.
LWMA Crossover_Signal Indicator For MT4 -Trading Reversals
In the next example I will show you how to spot good reversal trading opportunities using the lwma crossover signal indicator. So the first example is a buy signal which appears courtesy of the green arrow.
So the idea with a reversal trade setup is to wait for a buy signal below the 50-EMA line and obviously the market needs to be in an oversold region which is the core essence of this strategy. The moment you see a green arrow below the 50-EMA then it means that it is a reversal signal to the upside.
With the sell reversal, you just apply the opposite logic and look for a red arrow above the 50-EMA.
LWMA Crossover_Signal Indicator For MT4 -Trend Continuation
Up next we dive into trend continuation trading edges. In the image below I have just shown you a process that you can follow in order for you to identify trend continuation signals with the help of the linear weighted moving average crossover indicator.
So looking on the left-hand side of the image - we need to wait for the market to reverse to the upside so we need a green arrow to appear below the 50-EMA and then wait for the market to break it and go above this red EMA and then make a slight retracement. Upon the retracement, there needs to be another green arrow that appears but the difference is that the green arrow must appear above the 50-EMA line upon retracement.
Once we have this condition then it means that the market is going to continue in its underlying trend therefore we open up a buy. Similarly in our selling opportunity, we will wait for the market to give us a reversal sell signal with the red arrow appearing above the 50-EMA. After that, the market has to obviously break and close below the 50-EMA.
Then after that, there needs to be a retracement towards the red-EMA. As this is happening there needs to be a red arrow which appears but in this case it needs to appear below the 50-EMA. When we have this condition in place we can open up a sell trade as this confirms that the trend will be continuing with its new underlying movement or direction.
LWMA Crossover_Signal Indicator For MT4 - Conclusion
At this point I just want to point out one key difference between a trend continuation trade and a reversal trade. There is a tendency that the reversal trade movement will be longer than the trend continuation pattern. And that is because after a trend continuation pattern has taken place the market could reverse shortly thereafter therefore it is important for you not to commit too long into trend continuation trade setups.