Extreme TMA Trend Following Trading System
IntroductionThe market, like a pendulum, is an endless sequence of extremes. It always tries to get to the mean, but it never succeeds, as it constantly exceeds the mean level, goes back and tries again, but almost never reaches equilibrium. The trading system we present in this article attempts to capture those extremes.
The principles of the system are not complicated. The first indicator, the TMA shows us the average of the direction that the price action is following in the market. As such, it is a backward looking indicator and is intended to determine future price action based on recent history.
The TMA corrects itself by repainting. It features two outer bands that show us the outer limits of the price movement we are looking for.
Our second indicator, the TMA Slope indicatorwill show us the relative change in the slope of the TMA compared to the previous candles. It determines which direction a position should be placed and also shows price divergences.
For example, if the price is rising, but the TMA Slope indicator is falling, this means that there is a high probability of a price drop in the near future. The steeper the drop in the indicator, the greater the probability of a drop in price.
The same concept applies in reverse in the case of a falling market and a rising TMA Slope indicator. A third use of the TMA Slope indicator is for divergence detection. If 2 or 3 green mounds appear, each one smaller than the previous one, there is a strong probability that the price is about to fall. On the contrary, If 2 or 3 red mounds appear, each one smaller than the previous one, this means a high probability of a price increase.
On the right side of the TMA Slope indicator you can see the (grey) value of the current chart's time frame. Above you can see the value of the slope of the time frame D1 (daily) and below it shows the current situation and recommendation for the operation (Ranging, Buy only or Sell only) of the time frame for the current chart.
The third indicator of the system is the TMA Slope MTF which gives us the slopes of the 3 time frames. The final indicator gives us the D1 slope values of all currency pairs. A great tool to determine which pairs offer us the best opportunities.
MTF TMA: 3 TMA indicators have been included in the system template. The H4 TMA (magenta dotted lines), the D1 TMA (blue dashed lines), and the W1 TMA (green dashed lines).
All 3 indicators are visible on a chart of M15, H1 or H4.
- The H4 time frame is for 1-5 day trades and the profit potential is 170-250 pips.
- The D1 time frame is for 5-30 day trades and the profit potential is 200-400 pips.
Having multiple TMAs on a chart is very useful for determining trends over longer time frames and combined, they have a high predictive value of future market movements.
As always, it is recommended to test the system on a demo account or use small lot sizes.
System configuration
This trading system was developed based on custom indicators for Metatrader 4. We have attached a template and the compressed indicators ina filebelow. Extract and place the indicators (.mq4 and .ex4 files) in the Experts/Indicators folder of your MT4 platform.Put the template (TPL file) in the corresponding template folder. The new template of the Extreme TMA system is designed to follow a currency pair on one screen.
Also included is the new Dashboard (! V37 ExtremeTMA) that informs us which pairs are complying with the system standards in real time.
If the system is installed correctly, the graphic will have the following appearance:
https://preview.redd.it/0xql6t8ekoe91.png?width=768&format=png&auto=webp&s=7ee2d35197e9d9e22b11c957946356638ebdacfd
Download trading system files:- Template and custom indicators of the Extreme TMA system
*Files also include manuals and an Expert Advisor
Trading Strategy Input Rules
1- First the trend in the 3 TMAs is determined by using the values of the TMA Slope indicator.- TMA in range (-0.40 to 0.40): Trades can be placed in both directions.
- “Buy Only” TMA (Above 0.40): Only buy positions can be opened.
- “Sell Only” TMA (Below -0.40): Only sell positions can be opened.
- Bullish Super Range (Above 0.80): Hold long positions until the value of the slope falls below 0.80, at which point you should close all bullish positions.
- Bearish Super Range (Below -0.80): Hold short positions until the value of the slope rises above -0.80, at which point you should close all bearish positions.
2- Once the direction of the trade is determined, we will look at the TMA of D1 and W1 and determine if there is enough room for the market to move in the direction of the position before reaching the outer band of both frames of time.
Example: If we decide to open a short position, there should be enough space between the current price and the lower D1 band (At least 150 pips) and the lower W1 band (At least 250 pips).
3- Now we are going to wait for prices to rise above the upper band of the H4 TMA and D1 TMA at the same time, before making a sell trade or fall below the lower band of the H4 TMA and D1 TMA at the same time , before carrying out a purchase operation .
4- Entry: Once rule 3 is met, a buy/sell position will be opened when the following condition occurs:
- Sell position: The price reverses its direction and reaches the upper band of the H4 TMA.
- Buy position: The price reverses its direction and reaches the lower band of the H4 TMA
Note: Although not explicitly mentioned in the rules, it is always advisable to sell below proven resistance and buy above proven support. This is always a good rule to follow. This will avoid entering the market too early and increase the percentage of winning trades.
Valid support and resistance areas are: 50, 100 and 200 period moving averages, TMA center lines, Fibonacci levels, daily, weekly and monthly pivot lines, etc.
Stop loss placement
A natural level to place a stop loss would be above a previous high for a sell trade and below a previous low for a buy trade. The most advisable thing is not to use stops of loss greater than 100 pips. The TMA Extreme trading system works much better when the trader gives it enough room to develop.However, each trader has their own risk profile and should use the stop loss that is most comfortable for them.
Output rules for each type of operation
- Position trading: The position is closed when the price reaches the opposite D1 TMA band. A position can be re-opened when the price retraces to the center line of the D1 TMA. In this case it is necessary to make sure that all the values of the TMA Slope continue either in range (Ranging) or in the direction of the initial position before re-entering. The trader may do this multiple times during a strong trend move.
- Medium-term trade (Standard signal): The position is closed when the price reaches the opposite H4 TMA band. A position can be re-opened when the price retraces to the center line of the H4 TMA. In this case it is necessary to make sure that all the values of the TMA Slope continue either in range (Ranging) or in the direction of the initial position before re-entering. The trader may do this multiple times during a strong trend move.
- Short-term trade: The position is closed when the price reaches the opposite H1 TMA band. A position can be re-opened when the price retraces to the center line of the H1 TMA. In this case it is necessary to make sure that all the values of the TMA Slope continue either in range (Ranging) or in the direction of the initial position before re-entering. The trader may do this multiple times during a strong trend move.
