Announcement: The polarity indicator used in this strategy is now available on the Resources Page, access via the main menu…
The Bladerunner Reversal is a variation on the Bladerunner itself. It uses the forex polarity indicator, which is a combination of the 20 EMA and the Bollinger mid-band. In fact, you could just use those two together if you don’t have access to the polarity indicator (available in the Resources Center).
This variation actually trades the crossover of the two indicators underlying the polarity indicator. The actual cross itself is not apparent in the polarity indicator, which represents the two underlying indicators by means of an expanding and contracting yellow band.
For more details on the forex polarity indicator and why you would use it as opposed to the two indicators together, see the page describing it.
The pattern we are looking for is that price breaks out of a channel and trends with some strength and for some time. It then stalls, reverses and passes through the polarity indicator before coming back to retest the indicator from the other direction.
The chart at right will help to illustrate. The Asian session indicated by the blue area saw price gradually fall below a reasonably narrow band after having failed at the daily central pivot (yellow line) early in the session. Price then continued down punching straight through a weekly pivot (blue dotted line) before stalling and then reversing from a round number (grey dotted line).
Price then formed another indecisive band up to the end of the Asian session, where a large final surge down from the underneath of the polarity indicator occurred, right to the round number. Price then punched away from the round number and closed on the other side of the polarity indicator. At this point, the 20 EMA and Bollinger mid-band would have crossed over, representing an EMA crossover strategy signal.
Note the two white circles. The first indicates a bullish engulfing candlestick pattern and represents the first entry signal. The second indicates a further possible entry based on a quasi-morning star pattern or bullish engulfing candlestick that closed above the current range, indicated by the horizontal white line.
What is the difference between the Bladerunner and the Bladerunner Reversal? The Bladerunner waits for a trend to be confirmed and then trades bounces from the polarity indicator in the direction of that trend.
The Bladerunner Reversal comes into play when this trend completes and price reverses to close on the other side of the polarity indicator. Both strategies trade in the direction of the trend as determined by price closing on the appropriate side of the polarity indicator.
The example above shows a Bladerunner reversal traded from a bullish perspective. The graph at the left shows the flip side of this: a bearish trade from the underneath of the polarity indicator. Here, an upward move has completed and price has broken down to close repeatedly below the polarity indicator. An evening star pattern (circled) then forms from the underneath of the polarity indicator.
Employing both the Bladerunner and the Bladerunner Reversal together in the same session can be a good way to cope with price that is not trending for significant periods of time. In this manner they can be employed in combination as an effective EMA scalping strategy.