Trading is easy, however, consistently profitable trading is where the difficulty lies. Traders since the beginning of time have tried to come up with a strategy that they could use in order to increase their win rates while minimizing their risk. In this article, we go over one of the ways in which you could do so. We discuss the different indicators, the settings used, and also go over the results. Read on to find out more.
There are 3 main indicators used in this trading setup, and each of these indicators has been explained below in detail.
Squeeze Momentum Indicator
The squeeze momentum indicator is a volatility-based indicator that is used to identify when the market is flat and when the market is in a particular trend. For any time frame, over 80% of all price movements are just consolidations of a trend, and only 20% of movements are actually price movements in a particular direction. In this screener, we shall be using this volatility indicator to spot when assets are moving in a certain direction, and then pick those assets to implement trading strategies on.
The EMA is simply the exponential moving average of the stock’s closing price over a given number of trading sessions. It works in a very similar way to the SMA (Simple Moving Average), except it gives more priority to more recent data as this is considered to be more relevant than old data. The parameter that you have to enter for the EMA is the time period. Usually, traders only go long when the current price is above the EMA, and short when prices go below the EMA.
Average Directional Index
The ADX indicator is often called the ultimate trend indicator, as it helps traders to identify when prices are flowing strongly in one direction. It does this by using a moving average of a given number of bars and therefore helps to reduce the risk associated with trend-based strategies such as scalping. It is a line and gives a value between 0 and 100. The ADX gives the strength of a given trend irrespective of whether the trend is a bullish or bearish one. The higher this value, the stronger the trend.
For this particular trading setup, a 200EMA was used with default settings on the Squeeze Momentum indicator and the ADX. No trades were made unless the ADX was above 20.
A long was initiated whenever the current price was above the 200EMA and there was a white star under a green bar in the Squeeze Momentum Indicator.
A short was initiated whenever the current price was below the 200EMA and there was a white star under a red bar in the Squeeze Momentum Indicator.
The risk-reward ratio was fixed at 1:2.
Results and Adjustments
After a 15-minute trading session over the course of 6 months worth of past data, the overall results were:
Profitability: 962.75% net profit
Number of Trades: 103
% of trades profitable: 72.82%
Profit factor: 2.357
Some additional indicators and settings that could be added in order to increase the win rate and reduce the risk employed are:
- Different levels of leverage could be employed to boost the profitability and/or the win-rate associated with the strategy.
- The take-profit and stop-loss levels could be tweaked to further affect the percentages of trades that were profitable.
- Multiple take-profits or stop-losses could be added to change the profitability or the win rate.
There are several highly profitable trading strategies that you can use in order to trade the markets and profit, but there are few that are as highly effective as the one discussed above. By implementing it even in its current form, you can make significant profits. You can also tweak the settings and alter the parameters on your own, resulting in a higher win rate and/or profitability.
- Exponential Moving Average – Investopedia
- Squeeze Momentum Indicator – ATAS
- ADX: The Trend Strength Indicator – Investopedia