Decoding the TMV Trading Strategy: A Guide to Confluence
This post explores a powerful Pine Script trading strategy that combines Trend, Momentum, and Volatility (TMV) indicators. We’ll break down the logic behind its buy and sell signals and discuss common settings used by forex traders to achieve more precise entries.
The Core Principle: Why Confluence Matters
The TMV strategy’s strength lies in confluence. It doesn’t act on a single piece of information. Instead, it waits for three distinct types of indicators to align, providing a more reliable and well-rounded signal. This method is designed to filter out weak setups and identify higher-probability trading opportunities.
How the Buy Signal Works 📈
A “BUY” signal is triggered only when four key conditions are met, ensuring the market is primed for a potential move up:
- Trend Confirmation: Exponential Moving Averages (EMAs) must be in a bullish formation (e.g., 50 EMA > 100 EMA > 200 EMA), confirming a strong uptrend.
- Momentum Trigger: The fast EMA crosses above the medium EMA, signaling a fresh burst of buying pressure.
- Price Action Strength: The price must close above the Bollinger Band basis line, indicating bulls are in short-term control.
- Safety Check: The Relative Strength Index (RSI) must be below overbought levels, ensuring there’s still room for the price to rise.
How the Sell Signal Works 📉
Conversely, a “SELL” signal is the mirror opposite and requires a confluence of bearish factors:
- Trend Confirmation: EMAs must be in a bearish formation (e.g., 50 EMA < 100 EMA < 200 EMA), confirming a strong downtrend.
- Momentum Trigger: The fast EMA crosses below the medium EMA, signaling a surge in selling pressure.
- Price Action Weakness: The price must close below the Bollinger Band basis line.
- Safety Check: The RSI must be above oversold levels, ensuring the asset isn’t due for a sharp bounce.
Popular EMA Settings for Forex Trading
The “best” EMA lengths depend entirely on your trading style. Here are some of the most common combinations used in the forex market:
For Day Trading & Scalping
Traders focusing on short-term moves prefer faster, more responsive EMAs. A popular combination uses Fibonacci numbers.
- Fast/Medium/Slow: 8, 13, 21
For Swing Trading
Swing traders need a balance between responsiveness and smoothness. This classic setup is used to identify significant trend shifts, including the famous “Golden Cross” and “Death Cross.”
- Fast/Medium/Slow: 20, 50, 200
For Position Trading
Long-term traders use slow EMAs to gauge the market’s overall, big-picture direction.
- Fast/Medium/Slow: 50, 100, 200
Remember: The key to success is to backtest these settings on your preferred assets and timeframes to find what aligns with your personal trading strategy.
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Decoding the TMV Trading Strategy: A Guide to Confluence
This post explores a powerful Pine Script trading strategy that combines Trend, Momentum, and Volatility (TMV) indicators. We’ll break down the logic behind its buy and sell signals and discuss common settings used by forex traders to achieve more precise entries.
The Core Principle: Why Confluence Matters
The TMV strategy’s strength lies in confluence. It doesn’t act on a single piece of information. Instead, it waits for three distinct types of indicators to align, providing a more reliable and well-rounded signal. This method is designed to filter out weak setups and identify higher-probability trading opportunities.
How the Buy Signal Works 📈
A “BUY” signal is triggered only when four key conditions are met, ensuring the market is primed for a potential move up:
- Trend Confirmation: Exponential Moving Averages (EMAs) must be in a bullish formation (e.g., 50 EMA > 100 EMA > 200 EMA), confirming a strong uptrend.
- Momentum Trigger: The fast EMA crosses above the medium EMA, signaling a fresh burst of buying pressure.
- Price Action Strength: The price must close above the Bollinger Band basis line, indicating bulls are in short-term control.
- Safety Check: The Relative Strength Index (RSI) must be below overbought levels, ensuring there’s still room for the price to rise.
How the Sell Signal Works 📉
Conversely, a “SELL” signal is the mirror opposite and requires a confluence of bearish factors:
- Trend Confirmation: EMAs must be in a bearish formation (e.g., 50 EMA < 100 EMA < 200 EMA), confirming a strong downtrend.
- Momentum Trigger: The fast EMA crosses below the medium EMA, signaling a surge in selling pressure.
- Price Action Weakness: The price must close below the Bollinger Band basis line.
- Safety Check: The RSI must be above oversold levels, ensuring the asset isn’t due for a sharp bounce.
Popular EMA Settings for Forex Trading
The “best” EMA lengths depend entirely on your trading style. Here are some of the most common combinations used in the forex market:
For Day Trading & Scalping
Traders focusing on short-term moves prefer faster, more responsive EMAs. A popular combination uses Fibonacci numbers.
- Fast/Medium/Slow: 8, 13, 21
For Swing Trading
Swing traders need a balance between responsiveness and smoothness. This classic setup is used to identify significant trend shifts, including the famous “Golden Cross” and “Death Cross.”
- Fast/Medium/Slow: 20, 50, 200
For Position Trading
Long-term traders use slow EMAs to gauge the market’s overall, big-picture direction.
- Fast/Medium/Slow: 50, 100, 200
Remember: The key to success is to backtest these settings on your preferred assets and timeframes to find what aligns with your personal trading strategy.
How to Improve Accuracy with Stronger Confluence
While the base TMV strategy is solid, its accuracy can be significantly improved by making the rules for confluence stricter. This means adding more filters to ensure every part of the market is in agreement before a signal is generated. Here are four powerful ways to enhance the strategy.
1. Stricter Trend & Price Action Filters
Instead of just confirming the EMAs are stacked correctly, ensure the price itself is actively respecting the trend structure. A true uptrend should have the price trading above its key moving averages.
- Enhanced Logic: Add a condition like
close > ema_slow. This ensures you only consider buying when the price is decisively above your long-term trend baseline, filtering out false signals during bear market rallies.
2. From Passive Filter to Active Trigger (RSI)
Transform the RSI from a simple safety check (not overbought/oversold) into an active momentum trigger. A cross of the RSI’s 50-midpoint signals a clear shift in market control.
- Enhanced Logic: Replace
rsi < rsi_overboughtwithta.crossover(rsi, 50). This fires a signal at the precise moment bullish momentum takes over, providing a more timely entry.
3. Use Volatility for "Buy the Dip" Entries (Bollinger Bands)
Rather than just being above the BB basis line, a more nuanced approach is to wait for the price to pull back to this line within an established uptrend. This allows you to enter at a better price.
- Enhanced Logic: Combine your trend filter (e.g.,
is_strong_uptrend) with a pullback condition liketa.crossunder(low, bb_basis). This strategy helps you "buy the dip" when the price finds support at its short-term average.
4. Add Volume Confirmation
A price move on high volume is far more significant than one on low volume. Volume confirms conviction and reduces the chance of acting on a weak or false move.
- Enhanced Logic: Add a volume filter like
volume > ta.sma(volume, 20). This ensures you only trade when there is significant market participation backing the signal, increasing its reliability.
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