Countertrend forex trading with TD SEQUENTIAL Strategy For MT4

Countertrend forex trading with TD SEQUENTIAL Strategy For MT4

 

Table Of Contents:

  1. Countertrend forex trading with TD SEQUENTIAL Strategy For MT4
  2. Indicators Used and Timeframes
  3. Trading Strategy
    1. Long Entry Setup
    2. Stop Loss and Take Profit Settings
    3. Short Entry Setup
    4. Stop Loss and Take Profit Settings
  4. Conclusion

 

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 Countertrend forex trading with TD SEQUENTIAL Strategy is a contrarian forex strategy. A contrarian forex strategy is one that aims to trade against the prevailing trend. The contrarian principle of forex trading takes note of the fact that within every trend, there are periods of retracements. These may be due to profit-taking or from other players in the market seeking to acquire the currency that the majority of market traders are betting against.

Charles Dow explained this phenomenon in his principles spelt out in the Dow Theory, which sees market price activity as one that resembles the ebbs and flows of the ocean. As the oceans flow, they also ebb or recede. The countertrend or retracement is the period when the ocean is receding, and that is what contrarian traders try to capture in their trading activity.

The Countertrend forex trading with TD SEQUENTIAL Strategy is one of such contrarian strategies. It uses the moving averages to detect the trend, and then try to trade against the trend.


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Indicators Used and Timeframes

 

Several indicators are used to design the forex exclusive strategy for MT4. These indicators are as follows:

 

    • TD sequential indicator;


    • Doda stochastic indicator (setting 5-8-5 or default);



The Countertrend forex trading strategy with the TD Sequential indicators is able to identify trend retracement points by use of a counter system. This strategy allows high volume traders to buy at a time when supply is high, and sell when demand is also high.

The most important component of the TD Sequential indicator is the TD Countdown. This is a trend-based component that operates the counter, and compares the current close with the low or high prices of two candle-lengths earlier. The counter counts candles and only a complete 1-9 candle sequence is considered, before the retracement count that is used for the trade entries.

The time frames used for this strategy are the 4-hour time frame and the daily time frame.

 

Trading Strategy

The trading strategy is based on the principle of the price flip. The counter component of the TD Sequential indicator counts a series of nine candle/bar closes which are lower than the closing prices of four bars before (buy setup), or higher than the four bars before (sell setup).

The principle of price flip applies. Price flip means that the closing price that precedes the close of the setup has to match, or be higher (buy) or lower (sell) than the four previous closing bars. Once you see nine consecutive closing prices less or more than the closes of four previous bars, then the price flip can be sought for. If the sequence of nine candles is interrupted by a non-aligning close, then the sequence count has to be restarted. 

Here are the setups for the Countertrend Forex Trading with TD Sequential strategy.

 

Long Entry Setup

 

You can set up a long trade if the following conditions are fulfilled on the chart:

 

    • Wait for the TD Sequential indicator counter (in red colour) to count a sequence of nine closing candles by numbering them from 1 to 9 in a downward direction.

 

    • Next, allow the TD Sequential indicator counter to count one candle close in the upward direction (in blue colour).

 

    • Check to see that the fast Doda Stochastics indicator line has crossed above the slower one in an upward direction. This cross should occur in the oversold area of the indicator window.


    • Execute the trade at the open of the next candle.



The snapshot above shows several invalid buy entry setups and just one valid buy entry point. The reasons for non-validity of the other areas are failure of the Doda Stochastics to cross at the oversold area, or the new counting sequence that follows the 1-9 downtrend count appearing too early. Always ensure that the indicators align as there is no way of knowing what the candles would do in the future.

 

Stop Loss and Take Profit Settings

 

How do you exit the trades, whether to protect the position from excessive losses (SL) or to capture profits (TP)?

Set the initial stop loss below the lowest candle of the 1-9 candle sequence, using a previous support level as a reference point. The stop loss should be below a previous support in this case.

For the Take Profit target, you can decide to use a predetermined ratio of 2 times the stop loss (i.e. RRR of 1:2). However, this point must be below a previous resistance. Alternatively, if the signals start to turn in the opposite direction (new candle sequence along your trade route stops, or the Doda stochastics indicator crossed in the overbought area, you can exit the trade immediately if in some profit, or you can set a trailing stop while adjusting your SL to the entry price (break-even point). Some traders may decide to close half the position at this point to take in some profit.

 

Short Entry Setup

 

If the following conditions are fulfilled, then you are good to go for a short trade.

 

    • Wait for the TD Sequential indicator counter (in blue colour) to count a sequence of nine closing candles by numbering them from 1 to 9 in an upward direction.

 

    • Next, allow the TD Sequential indicator counter to count one candle close in the downward direction (in red colour).

 

    • Check to see that the fast Doda Stochastics indicator line has crossed below the slower line in a downward direction, with this crossover occurring in the overbought area of the indicator window.


    • Execute the trade at the open of the next candle (the number 2 candle).



Stop Loss and Take Profit Settings

Set the Stop Loss above the previous number 9 candle in the upward sequence, using a previous resistance as the reference point. In this manner, the Stop Loss should be above this previous resistance. 

The Take Profit should be set using a previous support as the benchmark. The TP should be set above this previous support, and must also be at least twice the distance of the stop loss. This gives a minimum risk-reward ratio (RRR) of 1:2 for yoru trade. You can also exit the position manually if the trade setups start to reverse (i.e. Doda Stochastics crosses in an oversold position). You may also close half the position and use a trailing stop to chase the remainder of the market if this is the case.

 

Conclusion

The Countertrend forex trading with TD-Sequential strategy for MT4 is relatively easy to apply. However, care must be taken with the signal generated by the Doda Stochastics oscillator. Most of the crossover situations are not sharp and you may see both lines of the indicator intertwined in the extreme areas of the indicator window. In these instances, patience is the watchword. Do not preempt anything by taking trades prematurely. Wait until all signals align before you trade.

 

Download the complete system description and the files here:

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