LMT Forex Formula Trading System For MT4
Table Of Contents:
- LMT Forex Formula Trading System For MT4
- Indicators Used and Chart Setup
- Trading the LMT Forex Formula 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 LMT Forex Formula Trading System For MT4 is swing-based. It is a trend-following trading system that utilizes a multiple timeframe indicator for generating signals. The goal is to trade the market price movements through the best signals.
Indicators Used and Chart Setup
Several indicators can be used for this strategy.
- LMT Trigger indicator: this is the main trigger indicator for the trade.
- Engulfing Bar Alert
- Doji Reader
However, the most important indicator is the LMT Trigger indicator. This indicator has its own window which appears below the chart, and shows green or red histogram lines in consonance with the momentum. Depending on which colour is shown, the trader can decide to go long or go short on the asset.
The engulfing bar alert and doji reader indicators are used to identify the engulfing candlestick patterns as well as the doji candles on the charts. These candles are indicative of reversals in the market and are used in conjunction with the LMT Trigger indicator. However, those traders that can easily identify these candle patterns do not need to use these indicators so they do not clutter the charts. Furthermore, the engulfing candle patterns are more reliable in identifying reversals than the doji candles. So if you must use any of these other indicators, the engulfing bar alert indicator is the preferred one.
This pattern depends on the identification of three reversal candlestick patterns:
- Engulfing pattern (bullish and bearish)
- Pinbars
- Doji candles
Engulfing pattern: Two candles form an engulfing pattern if the second candle has a lower opening price and a higher closing price than the first candle (bullish), or a higher opening price and a lower closing price than the first candle (bearish). In other words, the second candle engulfs the first one.
Pin bar formation: The candlestick looks like a pin (small real body and a single long shadow) which usually points away from where price looks to be going. This is a sign of market reversal. The real body is the trend move, while the shadow is the opposing action of the traders rejecting this move.
Doji pattern: Open and closing prices are the same, and indicates indecision. There may be no lower or upper shadow, or the upper and lower shadows may be of equal length. This should usually be accompanied by a candle in the direction of the reversal to make the move valid.
For this strategy to work reasonably well, careful attention to detail must be observed to avoid potentially false signals. What does this mean?
- A minimum of three red or green bars on the LMT Trigger indicator window must appear before a bar of a different colour appears, to give a valid signal. For instance, for a downtrend signal that needs a short trade, there must be a minimum of three green bars before a red bar that indicates a short entry signal is formed, indicating a signal to sell. Conversely, three or more red bars have to be present when a green bar forms, to provide a valid buy entry signal. If there are less than three bars of the previous colour, this invalidates the trade.
- The candle under consideration must close and the trade taken at the open of the next candle. This is because there are times it may look like a signal is forming during an active candle, but it may provide a different picture at the time the candle is closing. Be patient!
- The strategy is a reversal strategy and works best with highly accurate reversal candlesticks such as the engulfing pattern, doji pattern, or a harami with an outside day candle who’s high is higher than the day 1 harami candle (bullish) or who’s low is lower than a day 1 harami candle (bearish).
Time frames that can be used for trading are the 4-hour and daily charts.
Trading the LMT Forex Formula Trading System For MT4
Here is how to trade this strategy if you are looking for a short trading opportunity.
1. Short entry
Here are the conditions that must be fulfilled for a short entry setup.
- The LMT histogram must be above the midline of the indicator window.
- The LMT histogram must show at least three green bars before a red bar appears.
- Once a red bar appears as indicated above check the charts to see if there is a bearish engulfing candle pattern or a doji. These candle patterns must appear when prices have been trending upwards for sometime. You can use the accompanying indicator or you can identify the candlestick patterns manually.
- When the signal to enter short has appeared, wait for the active candle to close and then open a sell trade as soon as the next candle opens.
LMT Forex Formula Trading System For MT4 - Short Entry Setup
We can see that there were at least three green bags before the appearance of the red bar in the histogram portion of the LMT trigger indicator. We can also see that there was a bearish engulfing candlestick pattern at the same time that the red bar appeared. This was the only valid entry point in the entire chart, as they were other times that the engulfing alert indicator showed signals that were invalid.
Stop-Loss (SL) and Take Profit (TP) Settings
The Stop Loss should be set at a price slightly above the high of the engulfing candle. The Take Profit should be set using a previous support level. The SL:TP ratio is the risk-reward ratio, which should be a minimum of 1:3. In some cases, it may make more sense to target a 1:2 risk-reward ratio, especially if the range for the time period being traded is small.
2. Long entry
The rules for entering the Buy position are simple.
- The LMT histogram must be below the midline of the indicator window.
- The LMT histogram must show at least three red bars before a green bar appears.
- Once a green bar appears as indicated above check the charts to see if there is a bearish engulfing candle pattern or a doji. These candle patterns must appear when prices have been trending downwards for sometime. This is a reversal situation, so it is the downtrend that has to reverse upwards that is being traded.
- When the signal to go long has appeared, wait for the active candle to close and then open a buy trade as soon as the next candle opens.
LMT Forex Formula Trading System For MT4 - Long Trade Setup
Here is the long trade setup for this strategy. The bullish engulfing candlestick pattern is demarcated with a box, and we can see that at the same time the green bar appeared after 7 red bars. Notice how low the histogram is, and the number of red bars, which is a testament to the strength of the signal. You can also see that the price moved more than 300 pips to the upside, and the TP area corresponds to a zone where prior resistance was met by several candles.
Stop-Loss (SL) and Take Profit (TP) Settings
The Stop Loss should be set at a price slightly above the high of the engulfing candle. The Take Profit should be set using a previous support level. The SL:TP ratio is the risk-reward ratio, which should be a minimum of 1:3. In some cases, it may make more sense to target a 1:2 risk-reward ratio, especially if the range for the time period being traded is small.
Signals generated by the LMT Trigger indicator on the daily chart tend to produce more accurate signals with a greater degree of profits than the signals generated on the 4-hour charts.
Download the complete system description and the files here:
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Alerts In Real-Time When Divergences Occur
