Outside Bar Reversal Strategy with EMA Filter Indicator

What Outside Bar Reversal Strategy with EMA Filter the Indicator?

TradingView is a popular platform that enables traders and investors to analyze financial markets with the help of custom-built indicators. One such indicator is designed to help traders identify clear buy and sell signals based on price action and market trends. This powerful indicator integrates the use of the Exponential Moving Average (EMA 200) and price action patterns to trigger signals, making it highly effective for trend-following strategies.

Indicator Overview:

This indicator is tailored to help traders enter trades with a high probability of success by utilizing simple but effective criteria: price action and the EMA 200. Here’s a breakdown of how the indicator works:

• Buy Signal: When a candlestick closes above the high of the previous candle and the price is above the EMA 200, it indicates a bullish reversal. In this scenario, the trader receives a buy signal, and the strategy suggests setting the stop-loss at the swing low. The target should be set with a 1:2 risk-to-reward ratio.
• Sell Signal: Conversely, when a candlestick closes below the low of the previous candle and the price is below the EMA 200, the indicator triggers a sell signal. The stop-loss is set at the swing high, and the target is once again calculated with a 1:2 risk-to-reward ratio.

This simple, yet effective strategy provides traders with a systematic approach to enter and exit trades, thereby reducing emotional decision-making and increasing overall trade efficiency.

How Outside Bar Reversal Strategy with EMA Filter Indicator Works on TradingView

TradingView is a robust charting and analysis platform that allows traders to use custom indicators like the one described above. The platform also provides Pine Script, a programming language designed specifically for creating custom indicators and strategies.

Setting Up the Indicator on TradingView:

1. Step 1: Open TradingView and Access the Chart First, log into your TradingView account and open the chart of the asset you’re interested in analyzing.
2. Step 2: Use Pine Script to Create the Indicator If the indicator is not already available in
3. Step 3: Apply the Indicator After creating the script, apply it to your chart. Once it’s active, the indicator will automatically show buy signals when the criteria are met, along with sell signals when the reverse happens. The signals are visually represented on the chart with labels or arrows, making them easy to spot.

Understanding the Buy and Sell Signals:

The Buy Signal is triggered when:

• A candlestick closes above the high of the previous candlestick, indicating a bullish reversal.
• The price is trading above the EMA 200, confirming the trend is bullish.
• The strategy suggests setting a stop-loss at the swing low and a target based on a 1:2 risk-to-reward ratio.

The Sell Signal is triggered when:

• A candlestick closes below the low of the previous candlestick, signaling a bearish reversal.
• The price is trading below the EMA 200, confirming the trend is bearish.
• The stop-loss should be placed at the swing high, and the target is set to a 1:2 risk-to-reward ratio.

Why This Indicator is Effective?

1. Trend Confirmation with EMA 200: The use of the EMA 200 ensures that trades are taken in the direction of the prevailing market trend. The EMA 200 acts as a dynamic support or resistance, helping traders to align their entries with the overall market momentum.
2. Clear and Actionable Signals: The indicator gives clear buy and sell signals based on price action. This simplicity is crucial for traders who prefer a rules-based approach, reducing emotional decision-making.
3. Risk Management: The 1:2 risk-to-reward ratio ensures that each trade has the potential for significant profits, while also controlling losses. Proper risk management is a key component of long-term success in trading.
4. Customizable and Versatile: This indicator can be customized based on your specific trading style. You can adjust the time frames, stop-loss levels, and risk-to-reward ratios to suit different market conditions and preferences.

How to Maximize the Indicator’s Potential?

• Timeframe Considerations: The indicator works well across multiple timeframes. However, it is most effective on longer timeframes such as the 1-hour, 4-hour, or daily charts. On shorter timeframes, the price action may be more erratic, reducing the reliability of the signals.
• Combining with Other Indicators: For even better results, consider combining this indicator with other technical tools, such as RSI (Relative Strength Index) for overbought or oversold conditions, or MACD for momentum analysis.
• Backtesting: It’s always a good practice to backtest the strategy on historical data before using it in live trading. TradingView provides a backtesting feature that allows you to test the strategy on past price action, helping you gauge its performance.

Final Thoughts:

In conclusion, this EMA 200-based price action strategy is a simple yet effective approach to trading, particularly for traders who prefer to trade in the direction of the market’s overall trend. By utilizing Pine Script in TradingView, traders can easily implement this strategy and gain valuable insights into market behavior. Whether you’re a beginner or an experienced trader, this indicator can help streamline your decision-making process, improve your risk management, and ultimately boost your trading performance.

By following the rules of this indicator, you can harness the power of trend-following strategies, taking advantage of profitable buy and sell signals generated directly on your chart in TradingView.

Pinescript of Outside Bar Reversal Strategy with EMA Filter Indicator

To access this indicator, call us at +91 7620658346. We provide algorithm development services for TradingView, MT4/MT5, and trading bots.
Follow @algo_aakash on Instagram, YouTube, and Twitter for updates.

Disclaimer

The content in this article, along with any associated indicators, is intended for educational purposes only. Trading in financial markets carries significant risk, and there are no guarantees of profit. The custom Bollinger Band strategy relies on historical data and technical analysis, which may not accurately predict future market movements. Users are encouraged to conduct their own research, assess their risk tolerance, and seek advice from a licensed financial advisor before making any trading decisions. The author and developer of this indicator are not responsible for any losses resulting from the use of this strategy. Please trade responsibly.

Click here to access the indicator.