Premier Stochastic Mean Reversal Forex Trading Strategy for MT5

Ranging markets are typically ignored by most latest traders as many find it easier to trade trend-following strategies. Nevertheless, ranging markets do present loads of viable trading opportunities that will provide decent yields with a reasonably consistent return. This strategy shows us a scientific approach to trading mean reversal setups inside an identifiable trading range using the Premier Stochastic Oscillator and the Keltner Channel.

Premier Stochastic Oscillator

The Premier Stochastic Oscillator (PSO) was first introduced by Lee Leibfarth within the August 2008 issue of the Technical Evaluation of Stocks and Commodities journal. It was developed to capitalize and improve on the strengths of the Stochastic Oscillator, to make it more responsive and reliable. As such, it’s a momentum technical indicator based on the Stochastic Oscillator.

The PSO indicator does have some noticeable differences compared to the Stochastic Oscillator. Unlike the classic Stochastic Oscillator, which has a variety of 0 to 100, the PSO indicator has a modified normalized range of -1.00 to 1.00. For this reason, the PSO registers neutral values at zero, which in theory should allow for higher sensitivity to recent short-term price oscillations.

The PSO can be calculated using a Double Exponential Moving Average (DEMA) to create smoother oscillations about price motion. This creates momentum indications that are inclined to be more reliable in comparison with other oscillators. These two features allow the PSO indicator to balance its signals between sensitivity and reliability.

The PSO indicator plots histogram bars that oscillate inside the range of -1.00 and 1.00, with markers at levels +/-0.9, +/-0.2, and 0. It plots green bars each time the values range from 0 to 0.9 and maroon bars when the values range from 0 to -0.9. The colours change each time the worth of the bars exceeds the -0.9 to 0.9 range. It plots lime bars each time its values exceed 0.9 and red bars each time its values drop below -0.9.

Traders can use this indicator as a momentum direction indicator based on the colour of the bars. Green bars indicate a bullish momentum while maroon bars indicate a bearish momentum.

It will probably even be used as an oversold and overbought indicator. Lime bars indicate an overbought market, while red bars indicate an oversold market. Each scenarios are prime conditions for mean reversals.

Keltner Channel

The Keltner Channel indicator is a volatility-based trend following a technical indicator developed by Chester Keltner within the Nineteen Sixties. It is an easy technical indicator that uses a Easy Moving Average (SMA) and an Average True Range (ATR) to provide traders an image of the direction of the trend, the volatility of the market, in addition to the market’s normal range.

This indicator plots three lines. The principal line is a moving average line, which is often preset as a 20-bar Easy Moving Average line. Nevertheless, users might also opt to switch the variety of bars utilized in its calculation and use an Exponential Moving Average (EMA) as a substitute of an SMA line. The indicator then calculates for the product of the ATR and a preset range multiplier, which is often set at 2. The resulting value is then used as the space between the center line and the outer lines. It simply adds the worth to the moving average line to plot the upper line and subtracts the worth from the moving average line to plot the lower line. These three lines create a channel-like structure that typically envelopes price motion.

Traders may use this indicator as a trend direction indicator. The market is taken into account to be in an uptrend each time price motion is mostly above the center line and in a downtrend each time price motion is mostly below the center line.

The outer lines can be used as thresholds for the traditional range. Price motion breaching above the upper line is indicative of an overbought market, while price motion dropping below the lower line is indicative of an oversold market.

This version of the Keltner Channel also plots a middle line that changes color to point the direction of the momentum. It plots a deep sky-blue line each time the road slopes up and a pale violet-red line each time the road slopes down.

Keltner Channel

Trading Strategy Concept

This trading strategy is a mean reversal trading strategy that’s best utilized in a ranging market. It uses the Premier Stochastic Oscillator and the Keltner Channel to discover confluences of oversold and overbought indications.

First, traders should discover the support and resistance levels based on the swing highs and swing lows. As the worth touches these levels, traders may then observe how price motion responds and confirm on the PSO and the Keltner Channel whether the market is oversold or overbought. These could be a breach outside the -/+0.90 range on the PSO and a breach outside the Keltner Channel. The entry signal is then confirmed based on the PSO bars changing color as price motion reverses.

Buy Trade Setup

Entry

  • Discover a support level based on the swing lows.
  • Price motion should touch the support level.
  • Price motion should drop below the lower line of the Keltner Channel.
  • The PSO bars should change to red.
  • Open a buy order as soon because the PSO bars revert to maroon.

Stop Loss

  • Set the stop loss on the fractal below the entry candle.

Exit

  • Set the take profit goal on the resistance above the trade entry.

Premier Stochastic Mean Reversal Forex Trading Strategy - Buy Entry

Sell Trade Setup

Entry

  • Discover a resistance level based on the swing highs.
  • Price motion should touch the resistance level.
  • Price motion should breach above the upper line of the Keltner Channel.
  • The PSO bars should change to lime.
  • Open a sell order as soon because the PSO bars revert to green.

Stop Loss

  • Set the stop loss on the fractal above the entry candle.

Exit

  • Set the take profit goal on the support below the trade entry.

Premier Stochastic Mean Reversal Forex Trading Strategy - Sell Entry

Conclusion

This trading strategy is a wonderful mean reversal trading strategy. Nevertheless, it’s best utilized in markets with clear support and resistance levels typically present in ranging markets. Traders can use this trading strategy with fairly decent results when utilized in the fitting market context. Nevertheless, it shouldn’t be utilized in markets which can be too volatile with erratic market swings.


Forex Trading Strategies Installation Instructions

This MT5 Strategy is a mixture of Metatrader 5 (MT5) indicator(s) and template.

The essence of this forex strategy is to rework the accrued history data and trading signals.

This MT5 strategy provides a possibility to detect various peculiarities and patterns in price dynamics that are invisible to the naked eye.

Based on this information, traders can assume further price movement and adjust this strategy accordingly.

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Find out how to install This MT5 Strategy?

  • Download the Zip file below
  • *Copy mq5 and ex5 files to your Metatrader Directory / experts / indicators /
  • Copy tpl file (Template) to your Metatrader Directory / templates /
  • Start or restart your Metatrader Client
  • Select Chart and Timeframe where you ought to test your forex strategy
  • Right click in your trading chart and hover on “Template”
  • Move right to pick out the MT5 strategy
  • You will note strategy setup is obtainable in your Chart

*Note: Not all forex strategies include mq5/ex5 files. Some templates are already integrated with the MT5 Indicators from the MetaTrader Platform.

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