ADX and stochastic forex strategy

A solid investment forex strategy, that definitely belongs into conservative category. During the run of our 13 year data test, it opened just about 10 trades per year. However, once it enters the position, it follows the profits for as long as possible. This is represented by high profit factor (above 2 for various scenarios) and low drawdown.

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To find suitable entry strategy uses high period ADX as a primary trend filter. Momentum setup for stochastic indicator is used to find suitable entry point within trend. We want price to move rapidly from our trailing stop, that is adjusted after each candle close. Furthermore, strategy confirms the signal by comparing last three candles to current candle size.

 

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Strategy was tested on tick data 1H EURUSD since 2003. Following setting have been used to achieve results in screenshots. 

 

Used tools and indicators

 

Average directional movement index (ADX 500). Primary, all in one tool for trend momentum and direction identification. All trades are taken only in direction of ADX defined trend. Apply additional line with value 10. This will be used as momentum filter.

 

Stochastic (D 6, K 10, slowing 3). This standard oscillator is used to find immediate momentum that will trigger entry. It is confirmed by candle signal.

 

Candle formation signal. 4 Candle formation. Candle no.4 has larger body than any of previous 3 candles. We can also define the minimum (10 pip in test) size of the body to narrow down the signal and to adapt it for different scenarios (pair, time frame).

 

Trailing stop. Adjusted with each candle close, only in the direction of profitable trade. Additional distance of 10 pips is applied.

 

Forex strategy rules

 

SELL

 

Main ADX line (blue) trending above 10 line. Presence of the trend confirmed.

DI+ trending below DI-. Downtrend identified. We will be looking for short trades only .

 

Signal: both stochastic lines falling below 30 line. This action is coupled with bearish candle with defined body size (10-150 pips). Its body is larger than body of any of previous 3 candles.

We enter the trade short, on signal candle close. Trailing stop is placed above its high + extra distance of 10 pips.

 

BUY

 

Main ADX line (blue) trending above 10 line. Presence of the trend confirmed.

DI+ trending above DI-. Uptrend identified. We will be looking for long trades only .

 

Signal: both stochastic lines rising above 70 line. This action is coupled with bullish candle with defined body size (10 -150 pips). Its body is also larger than body of any of previous 3 candles.

We enter the trade long, on signal candle close. Trailing stop is placed below its low - extra distance of 10 pips.

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Disclaimer:  Expert advisor was tested for profitability on historical data. All screen shots provided are displaying real results of the test. However past data will never guarantee future success. Every expert advisor needs to be tested properly on demo account. LIVE use only on your own risk. Read full disclaimer. TheForexKings Team does not give any financial advice. TheForexKings does not take any responsibility for any user’s investments and investment decisions. All rights reserved. Strictly for personal use.

 

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Only in 2016 - 2017 we have created more than 400 forex strategies. During this period we have also developed and published +200 MT4 Expert advisors based on those strategies. We are dedicated to provide you with viable and complete trading systems that have thrived in extensive historical testing. We want to give you complete and transparent trading solutions, that once mastered ,will set you financially free. We want to give you a fighting and winning chance in the market. ” 

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