Levels Reversal Trading System For MT4
Please note: This strategy was publicly published in the trading community and is free to use. We do NOT make an attempt to decide if this strategy is profitable or not, because we know that the major factors regarding trading results are the skills/experience of the trader who executes the strategy. Therefore, we are mainly explaining the components and rules of the strategy. If applicable, we are highlighting advantages, disadvantages and possible improvements of the strategy.
The Levels Reversal Trading System For MT4 is a pivot point trading strategy that incorporates an oscillator to aid in spotting potential trading opportunities through reversals. It is a well-suited system for trading currencies on the 4-hour chart. And its strong point is its simplicity, especially on how it combines price action trading and an oscillator into a straightforward trading method.
This article offers a guide in trading this system effectively. It provides details about its components and examples of its successful setups.
The Levels Reversal Trading System For MT4 Overview
As described, the system combines pivot points and an oscillator to trade reversals. Pivot points, of course, can be traded several ways, but pairing it with an oscillator opens a broader range of applications. Overall, the system becomes more than just a method for keying in on reversals, but it is also adaptive to a faster pace of trading, which is another strategy in and of itself.
The JMO indicator is the preferred oscillator here. But others like the Stochastic can fulfill the role as a gauge for determining the overbought or oversold condition of price. Equipped with the JMO reading, traders of this system can use it as a basis for placing trades on the support and resistance levels established by pivot points.
To help traders understand this system even more, below are descriptions of this strategy's two components:
Pivot Points
Pivot points are horizontal support and resistance levels on the chart. It is generated by first averaging the previous day's close, high, and low. That number, which is called the main pivot point, is then manipulated to extend three more pivot levels above and below the price.
The levels of pivot points are usually labeled as S1, S2, S3, PP, R1, R2, and R3. Some versions of pivot point indicators even divide those pivot points with another horizontal line at the midpoint, and it serves the same purpose as setting boundaries for price.
It is important to remember that when trading pivot points, that if follows the concept of breakouts and bounces. This makes pivot points excellent areas to assess momentum just from price action. And this system uses that same function wherein a break but a subsequent bounce should manifest for a trade to occur.
JMO Indicator
The JMO, as stated earlier, operates as an oscillator. It is a custom indicator that almost moves identically with the Stochastic and is derived from a moving average or its other variations. The standard one it uses is the linearly weighted moving average (LWMA).
JMO vs. Stochastic
Although both may seem to move synchronously, there are some slight differences in the two indicators. First, the Stochastic has an 80 overbought and a 20 oversold level. In contrast, the JMO has a lower oversold level at 15 and a higher overbought level at 85, which makes the extreme values deeper for the indicator.
And when it comes to alerting a potential reversal, the JMO indicator is clearly more sensitive to changes. Below is their comparison:
As can be observed, the JMO flirted with the overbought and oversold bands more often than the Stochastic. The JMO was fairly accurate in predicting the price's resumption to the prevailing downtrend by showing an overbought reading. However, it was not as correct in identifying possible countertrend opportunities in this chart. Some of the buy signals it offered amid the downtrend resulted only in exiguous gains.
Trading Mechanics
So, the system follows a simple set of rules: The price must break a support or resistance level and then make a return to signal a trade. The JMO indicator should support this with a reading that communicates a reversal. For instance, a buy trade will occur when the price breaks a pivot point support level but then moves back up to it, and the JMO indicator shows a 15 (oversold) reading.
Indicators
- Pivot points Levels
- JMO indicator
Timeframe
- 4-hour chart
Buy Trade - The Levels Reversal Trading System For MT4 Overview
As touched on, a buy trade follows these rules:
- The price should first trade lower and is enough to breach one of the pivot point indicators' support levels.
- Next is for the price to start inching back up the support level it just broke.
- An oversold reading, which is 15, should coincide with this potential buy trade.
- The lines on the JMO indicator should make a clear cross above 15 to confirm an entry.
- Once the above rules are in check, a buy order is placed on the next candle with a stop loss at the pivot point support level it just bounced on (or a few pips below it), and the initial target is at the higher pivot level.
Here is a clear break below the S1 level on May 11, but bearish momentum was put to a halt as the price started to climb back up. Upon closing above the S1 level, the JMO indicator also exhibited a bullish signal when the lines on its graph crossed above 15.
In this case, the entry was at the next candle as pointed out by the black arrow, and the stop loss was placed at a few pips below the same S1 level. The initial profit target was the main pivot point, PP, and it achieved it within the day. This trade was able to garner 35 pips of profit from an initial risk of 26; it also topped 70 pips and was very close to hitting the R1 level (secondary target).
Sell Trade - The Levels Reversal Trading System For MT4 Overview
Here are the sell trade rules:
- The price should first trade higher and is enough to breach one of the pivot point indicators' resistance levels.
- Next is for the price to start inching back down the resistance level it just broke.
- An overbought reading, which is 85, should coincide with this potential sell trade.
- The lines on the JMO indicator should make a clear cross below 85 to confirm an entry.
- Once the above rules are in check, a sell order is placed on the next candle with a stop loss at the pivot point resistance level it just bounced on (or a few pips above it), and the initial target is at the lower pivot level.
So, in the trade above, there were two candles that closed above the R2 level. The red candle that came after moved lower and was followed by the JMO indicator crossing below 85, which signified a sell trade. The stop-loss was placed at R2 and was almost hit but since the stop-loss was placed a few pips higher, the trade did not get stopped out.
This trade reached the S1 pivot of the next day and managed to collect 107 pips of profit from an initial risk of 20 pips. The stop-loss was readjusted to the next pivot point level below as the trade continued to break new support lines.
Please note: You should always try a new trading system on a demo account first. That way you can avoid unnecessary losses while learning the new rules.
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