You may already tell from the name, what this Forex trading strategy represents, and that is the breakthrough occurring in trends. It is a very simple to understand system that can be used on all timeframes and for all markets from the FX market to stocks and commodities. Let’s get into it.
This trading system uses several technical indicators that inform the trader on when to enter and exit a trade position. Fortunately, this trading system is very visual and easy to understand. We shall need 5 technical indicators, all of them labelled in the image below. All these indicators can be downloaded from the link at the bottom of the page, and they work with MetaTrader 4, no other Forex trading platforms. The best Forex brokers always offer MT4 since it is the most popular platform for traders.
COG (Centre of Gravity)
The COG indicator is represented by 5 lines on the main trading window on the real-time Forex charts. It is a modified version of moving averages, and they sort of act like the envelopes indicator (See uncommon technical indicators for more information). Also just like moving averages, the slope helps to tell the direction of the markets.
When the COG indicator lines are sloping upwards, you should know the market is bullish and start looking for buying signals. On the other hand, if the slope is downward, then look for selling signals. In addition to the slope, the colour of the COG indicator lines will also shift depending on market direction. This offers a visual aid to quickly identify market direction.
As you can tell from the name, this is a modified version of the MACD indicator, and it is found in the indicator window. Just like the MACD, values shift around the 0 mark, showing bullish signals when above this mark and vice versa. However, the QFFMACD has a few modifications. First, it is coloured, unlike the typical MACD. When the colour is green, the markets are bullish, and you should look for buying signals and vice versa.
Furthermore, the colour changes in intensity depending on the momentum in the markets. In a bullish market, a bright red hue shows that there is a lot of momentum to the upside, and it would occur during a strong uptrend. As the upward momentum dies down, the colour turns to a dark green, which means that even though the momentum is diminished, the markets are still bullish.
These modifications of the QFFMACD make the indicator very useful because swing traders can hold on to long-term trades as long as the indicator retains the same colour all through. As for intraday traders, a change in hue may signal the end of a short-term trend. (Best technical indicators and how to use them)
In addition to the colours, there is also a line going through the bars, and it too is important. When the line is trending within the bars, it indicates a lack of definitive momentum. Notice how all the major trends start when the line moves away from the bars? This line should be used to determine if there is volatility in the markets that might lead to trends, or if the market is ranging.
These are the green and red dots appearing either at the peaks or troughs of a range. If a green dot appears, this is a signal to buy, while a red dot signals a sell order. When markets are trading within a range, SHISIGNALS are extremely powerful, like in the image below:
In this image, the markets were trading in a range, and you can see how the SHISIGNALS would have helped a trader make at least 6 very profitable trades. Even when markets are not within a range, SHISIGNALS indicator can still help a trader determine when a possible trend reversal is about to occur. For example, if you were holding a long position and saw a red dot, that might tell you to close that position as the trend may be reversing.
RedHAS and RedHASext
These two signals work together to create a wave of green and red bars, and they are the most critical in this trading system. The first, RedHAS, looks very similar to the actual candlesticks, and the second, RedHASext is an extension of the first. Together, they tell how much momentum is in the markets and when a trend is about to end. The colour is the first signal they provide – green for bullish and red for bearish market sentiment. Furthermore, the length of these bars shows momentum – when the bars are long, then there is strong momentum either to the downside or upside depending on colour. As the bars start to get shorter, this shows dwindling momentum, and the possible end of a trend.
Using the breakthrough trading system
Now that you know all the signals involved, how do we make use of them. The first step is to identify when to enter a trade. Essentially, you’re looking for a convergence of signals provided by all the technical indicators described above. Let’s see how this works from an actual chart:
This image starts at point A, when a red SHISIGNAL appears. It is a signal to sell, and this is confirmed when the RedHAS and RedHASext turn red and the QFFMACD dips below the 0 mark. At this point, with all indicators signaling a sell, that is the time to open the trade with a short position.
At point B, a green SHISIGNAL appears, and a short-term trader or scalper could exit the trade. A long-term trader may need to wait for a confirmation signal, though, which would happen when the RedHAS and RedHASext turned green. As you can see, these indicators did not turn green, and even though the markets seemed bullish, the downtrend continued at point C reaching D. (How to make money through scalping)
At point D, another green SHISIGNAL appears, signaling a buying opportunity, but there is still no confirmation. That comes later when the line of the QFFMACD crosses out of the red bars. Typically, the red bars ought to indicate bearish sentiment, but the line tells us when the shift occurs even before momentum is gained. The COG indicators are also in a steep upward slope, all indicating a strong buying signal. If a trader had used this trading strategy, they would have got a very good profit as the uptrend gained momentum up to point E.
Here, COG became flat, showing that momentum had ended, traders had closed their positions and buying power had run out. That would have been a good position to exit the trade. From point E to F, there wasn’t any clear signal, but now the uptrend has resumed. Since this is a live chart, what do you suppose will happen next?
Download breakthrough system indicators
A number of technical indicators have been used in this trading strategy, but the most significant is the QFFMACD, which as mentioned earlier, is a modified version of the MACD. If you learn how to use the MACD indicator, then this trading strategy would be a lot more effective. Watch this video as an expert explains the basics of the MACD indicator: