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The video discusses the Vortex indicator, which is used to confirm current trends in forex trading. Backtesting with a 200 period EMA filter shows a win rate of 46%. A Whole Moving Average Mountain Histogram is also introduced. Viewers are encouraged to put in the work to test their strategies and consider the Vortex indicator as confluence or a supportive addition to their current system.
Using the Vortex Indicator for Forex Trading: Understanding and Backtesting the Trend Indicator
Introduction: The Importance of Following Trends in Forex Trading
Forex trading strategies all focus on following trends, as trading against the trend can be risky and result in losses. This article will discuss a new trend indicator for forex trading, the Vortex Indicator, which can be used in both mechanical and price action forex trading strategies, including the No-Nonsense Forex (NNFX) algorithm. The article will discuss what the indicator is and how it works, before backtesting it to see how effectively it can confirm trends and generate profitable trades.
What is the Vortex Indicator and How Does it Work?
Developed in 2009 by Etienne Botes and Douglas Siepman, the Vortex Indicator is a new indicator in comparison to other popular indicators like the Moving Average Convergence Divergence (MACD). It consists of two lines, an uptrend line (VR Plus) and a downtrend line (VR Minus), usually coloured green and red respectively. These lines confirm current trends and indicate when to buy or sell.
Backtesting the Vortex Indicator
To backtest the indicator, we used the default settings on the Euro/USD pair on the one-hour chart. We tested the strategy for 50 trades, using nothing but the Vortex Indicator and a 200-period Exponential Moving Average (EMA) to filter trades. If the price was above the 200-period line, we only went long, and if it was below, we only went short. We used a 1.5 to 1 reward to risk ratio and a swing low for the stop loss.
Results of the Backtest
The backtest resulted in a win rate of 46%, which is considered a reasonably good result when using a strategy as simple as this one. We can make some improvements by using the Average True Range (ATR) for profit and loss levels or considering using price action as confluence.
Using the Vortex Indicator with the NNFX Algorithm
The Vortex Indicator can be an effective confirmation indicator when used within the NNFX algorithm. It helps catch new forming trends or picks up the continuation of a bigger trend. The NNFX algorithm involves following a set of rules for entry and exit points, which are supported by several confirmation indicators. Adding the Vortex Indicator as a confirmation indicator can improve the effectiveness of the NNFX algorithm.
A Second Trend Indicator to Consider
In this article, we also introduce the Hull Moving Average (HMA) Mountain Histogram as a second trend indicator that can be useful for forex trading. A more in-depth backtesting of this indicator could be interesting for future research.
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Conclusion
This article discussed the significance of trends in forex trading and introduced a new trend indicator, the Vortex Indicator. We explained how it works and provided a backtesting strategy to confirm its effectiveness. Using the Vortex Indicator within the NNFX algorithm can increase the accuracy of the trades. Additionally, we discussed a second trend indicator, the Hull Moving Average (HMA) Mountain Histogram, as a potential useful addition to forex trading strategies. Remember, consistent testing and support is crucial for success in forex trading.
