Stochastic MTF Forex Strategy For MT4
Designed on the basis of stochastic oscillators’ as the major entry and exit filters, The Stochastic MTF Forex Strategy For MT4 is a trend following trading methodology for the scalpers. It does not seek to predict where the next market price movement will be but rather to identify the perfect entry once markets price starts moving in a particular direction. However, unlike other trends following systems, this trading methodology applies only to the M15 timeframe. As for the applicable trading assets, it conforms to the trend following the rule of applying to all trading assets.
This scalping trading strategy if followed as the trading rules prescribe a theoretical win rate of 80%, this is enough to make consistent profits in the market. This is the chief reason we sought to delve into this system DNA and find out if it is actually all it’s billed to be.
OVERVIEW OF THE Stochastic MTF Forex Strategy For MT4
With the word stochastic engraved as part of this systems name seeing several stochastic oscillators used as part of its trading indicator arsenal is no surprise. The question is, how does this readily available indicator form the basis of a trading system with such a high win rate?
Hull Moving Average
Instead of one of the universally used moving averages, the Stochastic MTF Forex Trading Strategy employs the powerful Hull Moving Average, HMA, as its go-to moving average. Developed by Allan Hull, the HMA seeks to dispel the bane coupled to moving averages, lagging effect when showing the prevailing market trend.
The other three common moving averages have their own algorithm of reducing the lagging effect, but it comes at a price, increased false signals and a choppy moving average. Allan Hull came up with a mathematical formula that reduces the lagging effect associated with moving averages without compromising its smoothness, LWMA[square root(period), (2*LWMA(period/2, price)-LWMA(period, price)]. The effect of this algorithm is a very fast-moving average with filtered out market noise.
The Stochastic MTF System goes a step further, and colour codes its Hull Moving Average of period 20 as follows;
- Dodger Blue colour to show a bullish market,
- Yellow colour to indicate a ranging market,
- Crimson colour to signal bearish market conditions.
The daily pivots in this system appear in different colours;
- Midnight blue colour for resistance
- Aqua colour for the daily pivot point
- Maroon colour for the support.
Building upon the hull algorithm used in its moving average to ensure the perfect setup, support and resistance levels here are calculated based on the Fibonacci retracement levels. Unlike the traditional role of price movement forecasting, there use, solely setting either the take profit levels or the stop-loss levels.
A resistance level forms when selling pressure exceeds buying pressure driven by excess supply in the market resulting in the price of an asset falling at this point. A support level, on the other hand, forms when the prevailing market buying pressure exceeds selling pressure riding off the back of short supply in light of existing market demand resulting in the increased price of that asset at this point.
In addition to filtering out the perfect position stop-loss and take profit levels, these resistance and support areas inform on the ideal entry points.
George Lane introduced this price momentum indicator to the world. In everyday practice, a change in momentum either signals a change in direction or a momentary pause before continuation in the same direction. This concept holds water when it comes to forex trading. Understanding the stochastic oscillator indicator helps traders gain valuable insights into the prevailing market momentum. The market momentum, in turn, is insightful in gauging the strength of the current price direction, and therefore when to take advantage of the prevailing market conditions.
Utilizing four different stochastic indicators in addition to a hull moving average, the entry signals generated on the cross of these stochastic indicators are highly precise.
The 4 different stochastic indicator variations use settings ranging from;
- 3 fast-moving one of periods 9/5/5 based on different timeframes, from M30 to H4
- A slow-moving one of periods 14/5/5. It also differentiates itself from the normal stochastic indicator window commonly used by having a level -10 and a level -90 in addition to being coupled with the Williams percentage range indicator.
Williams Percentage Range
Also referred to by its acronym, the WPR indicator, the Stochastic MTF System uses this indicator to filter out the ideal entry positions further. This indicator shows the long term market condition; a position above the 50 level indicates a bullish market while a dive below the 50 level signals a bearish market.
Stoch Crossing Indicator
Borrowing a leaf from the moving average crossover signal, this trading system uses colour coded arrows to give visual confirmation on the stochastic oscillators fulfilling trading parameters;
- Dark Orange fractal arrow that is downward facing for short positions,
- Lime coloured fractal arrow that is upward facing for when to go long.
STOCHASTIC MTF FOREX SYSTEM TRADING SETUPS
Witnessing the trading parameters below, just like the sample chart above exhibited, informs of entry into a long position;
- A lime fractal arrow forms indicating to go long.
- The HMA turns colour to dodger blue.
- The main stochastic oscillator, blue and red coloured ones, move from the -90 level, which is an oversold region and are climbing.
- The WPR is above the 50 level.
- The M30 MTF Stochastic Oscillator also climbs over the 20 level, oversold region.
Place your stop loss for such a setup 40 pips below your entry.
Witnessing the trading parameters below, just like those exhibited in the sample chart above, informs on when to short the market;
- A dark orange fractal arrow forms indicating to go short in the market,
- The HMA turns colour from dodger blue to crimson,
- The main stochastic oscillator, blue and red coloured ones, move from the -10 level, which is an overbought region and are on a dive.
- The WPR is below the 50 level
- The M30 MTF Stochastic Oscillator is just below the 80 level, overbought region signaling bearish reversal and on a nosedive.
Use the support and resistance levels as your take profit levels.
Download the complete system description and the files here: