What is the Trend Wave Indicator on MT4?
The Trend Wave indicator is a trend-and-oscillator indicator. Its system uses two Moving Averages, which meet at crucial levels that indicate buy or sell (the algorithm itself is a bit more complex).
You may use the Trend Wave indicator by itself, but it's more effective with other indicators. From this article, you'll learn about the indicator's settings and parameters, working principle, application in forex trade, and the example of simple TrendWave methods, where all the characteristics, benefits, and limitations of the indicator are applied to short-term trading are made clear.
Ten years ago the download cost $100, but happily it's free today. Some "writers" still offer modified copies of TrendWave.
How Does the Trend Wave Indicator Work?
The Trend Wave indicator combines two specialized techniques. First, as an oscillator, it detects overbought and oversold zones.
The indicator uses Simple and Exponential Moving Averages with basic price levels. When the MAs meet in overbought or oversold zones restricted by strong price levels, technical analysis shows a chart dot. Unfortunately, the chart generation method is complex. Thus it's not worth studying.
Most techniques are based on the indicator reversal pattern, which appears as a dot when its two lines meet higher or lower at a certain level (depending on the projected direction of the position you will open).
Here are a few things to consider:
- The indicator key values are -50 and 50. A buy signal is when a dot is painted between levels –50 and -60; a sell signal is when the dot is drawn between levels 50 and 60. This is an even stronger indication if the trend wave indicator falls below -60 or rises above 60. However, since this is uncommon, it is wiset to refer to the suggested range.
- After the dot is painted, the indicator lines should be pointing outside the zone, and they should cross the levels and return to zero in one or two bars (middle line).
- The fact that the indicator does not often repaint is a clear benefit. Another benefit is that it is handy during flat trading.
Trend Wave Indicator Inputs:
WavePeriod: This parameter sets the algorithm inputs based on the period selected. This is the indicator period.
AvgPeriod: This is a smoothing (averaging) period (the number of bars being evaluated) applied to both moving averages (the lines of bulls and bears). The shorter the time, the more sensitive the indicator is to price fluctuations and the more false signals there will be; increasing the parameter will lower the number of trade signals and make them more trustworthy, although they may lag. The indicator's effectiveness is determined by how ideal the period is.
SoundAlert: It is a sound notification of the presence of trading signals. It is beneficial if the indication plays a secondary role and you do not have time to check the chart constantly. However, remember that when you combine the TrendWave indicator with additional indicators, you will only get notifications about the TrendWave signal, not a prospective entry.
Email Alert: This feature notifies you of the trading signal through email. Considering the trading frequency and the intraday timescales, this tool seems meaningless to me.
The TrendWave indicator has received both bad and good reviews., examples of the downsides are lagging and erroneous signals. E
Of course there is no such thing as a perfect indicator; much is dependent on fundamental variables such as overall market conditions, forex trader mood, average volatility of the instruments, and so on.
Let's put some of this theory into practice.
Trend Wave Indicator Trading Strategy
This scenario assumes that you only use the trend wave indicator as an individual tool.
One signal is sufficient; two indicators are preferable. Of course we want to make money but it can also be important to understand how it works so that you can use it effectively.
So, we'll start with a simulator, a strategy based just on the TrendWave indicator, with no visual analysis.
The time limit is 5 minutes. This is a risky period for this indicator. Thus it would be best to use it in timeframes beginning with H1.
However, this will be enough to demonstrate how this indicator operates. EUR/USD and GBP/USD are currency pairings.
WavePeriod = 10, AveragePeriod = 21. Levels are 60, 50, -60, and -50.
Conditions for participating in a long trade:
- TrendWave draws a yellow dot around level 60 but not below level 50.
- The TrendWave will descend during the following 5 hours (but no longer) and paint a blue dot near level -60 as feasible but no higher than level -50.
- The lines connecting these dots seem pretty straight, with no conspicuous local extremes.
You enter a transaction in the next bar after the blue dot appears. The profit objective is small; 10 pips will suffice.
A stop loss is set at a small distance, no more than 10-20 pips.
You can read about our 5-pip scalping strategy here.
You can see two distinct colored dots painted at opposing levels in the illustration. Both lines are pretty straight, with a bit of space in between.
You may enter a trade at any of the three bars when the blue dot appears.
The red horizontal lines indicate: take profit, entry point, and stop loss from top to bottom. When the stop loss does not trigger, the order closes the position in a few bars, and the departure point is shown by the green arrow.
The following conditions must be met before engaging in a short trade:
- TrendWave draws a yellow dot around level -60 but not above level -50.
- The TrendWave will rise during the following 5 hours (but no longer) and paint a blue dot as near to level 60 as feasible but no lower than level 50.
- The lines connecting these dots seem to be relatively straight, with no conspicuous local extremes.
- The conditions for joining a trade are identical to those for entering a long trade.