Forex market trend reversals happen all the time. As long as there are market trends, there will always be chart reversals. Many trend and trend reversal forex trading tools and strategies depend on this concept. It’s now only a matter of how a forex trader can use the right tools to catch the reversals and trade the trends. The Lucky reversal forex indicator is among the many reversal trading indicators. But it has some features that make it different from other forex market trend reversal indicators.
What Is The Lucky Reversal Forex Indicator
The Lucky reversal indicator does what its name implies: it tells when the trend has turned from an uptrend to a downtrend or from a downtrend to an uptrend. It gives its signals in blue and red arrows, followed by wavy horizontal lines. The blue arrow marks the beginning of an uptrend, while the red arrow signifies a market reversal to the downtrend.
Another feature of the Lucky reversal indicator must be more obvious at first glance. This feature is the white square that appears when the indicator suggests a temporary or potential reversal.
The major flaw of the Lucky indicator
The Lucky reversal indicator is unlike many trend reversal indicators out there. First, it is a lagging indicator, so a trader can hardly trade reversal breakouts with it.
Many traders have been frustrated by using the indicator to catch the beginning of reversals, and you can’t blame them for trying. However, if you backtest the indicator, you will find that the bullish and bearish signals are right at the lowest or topmost pivot points of major trend reversals. See an example in the image below. You’ll notice that the price seems to reverse as soon as the arrow appears.
On testing the indicator on a live market, however, you will find out that the bullish or bearish signals only appear after the market has completed a reversal. Furthermore, the reversal arrow appears on the chart only when the reversal has been confirmed. This shows that the Lucky reversal indicator lags.
The major strength of the Lucky indicator
The major weakness of the Lucky indicator is its strength. Because it lags, you can hardly catch reversals with it, but you can use it to confirm trades in the emerging trend. For instance, you can trade the uptrend that emerges after the market has reversed from the downtrend to the uptrend.
The Lucky Reversal Indicator Trading Strategies
The best way to trade using the Lucky reversal indicator is to include it in a trading system where you can confluence with other trading tools. For example, other trading tools in the strategy could be indicators or market structures (supports and resistances, candlestick patterns, chart patterns, etc.).
To help you understand how to combine the Lucky indicator with other indicators, we will use the indicator with the Moving Average indicator to form the first trading strategy.
Combining the Indicator With The Moving Average Indicator
Pull up the Lucky indicator and two moving averages on your chart. Leave one moving average as it is, but change the period of the other moving average to 20. Please change the color to tell it apart from the other moving average. The default moving average will be our fast-moving average, while the 20 MA is our slow MA.
Next, wait for the Lucky indicator to give you a buy or sell signal. Remember that this indicator lags, so you are not looking to trade the buy or sell signal of the indicator. Instead, we want to trade entry opportunities toward the trend that the Lucky reversal indicator confirms. This is why we have those two moving averages.
When our trend reversal indicator gives an uptrend signal, you only buy when the fast MA crosses over the slow-moving average to the upside. Only sell once the Lucky reversal indicator changes from blue to red arrows. And when our reversal indicator gives a downtrend signal, you only sell when the fast MA indicator crosses the slow-moving indicator to the downside.
That is how you combine the Lucky reversal indicator with other indicators. You don’t have to use the moving average periods we used here for your strategy. You don’t even have to use moving averages. All you need to do is to find a trend trading indicator and combine it with the trend reversal indicator, as we have done.
There is still another way to trade the signals of the Lucky indicator. And this brings us to the second trading strategy.
- Trading The Lucky Reversal Indicator Signals
The Lucky indicator often displays the white square where there is likely to be a reversal. From this point, the price keeps moving, but the white square remains at its position. When a trend reversal is confirmed, the white square changes to an uptrend or downtrend signal. At the close of the candle, where the white square changes to a buy or sell signal, make the appropriate trade.
For instance, make a buy trade when the Lucky indicator confirms an uptrend, and make a sell trade when the indicator confirms a downtrend.
For each trading strategy up there, setting price targets is the best way to set your take profits. Don’t wait until any indicators give an opposing signal before you exit the trade.
And when you want to set your stop losses, don’t forget not to risk more than you can afford to lose. A rule of thumb is to not risk over 2% of your capital on a trade. With that at the back of your mind, you may use any method you’re familiar with to set your stop loss.
The good thing about the Lucky indicator is that once it draws its wavy lines, the price rarely crosses over to the other side. So you may use this to set your stop losses, but it might only sometimes give you palatable risk-to-rewards ratios.
Who Is The Lucky Reversal Indicator Best For?
The Lucky reversal indicator is best for intermediate and professional forex traders.
Beginner forex traders who understand lagging indicators and how to trade them may also use the indicator with caution. To get the best out of this indicator, they may first need to know how to identify forex trend reversals.
Also, the trend reversal indicator is best for trend and trend reversal traders.