The second article of the series on trading system Forex Strategy Master (before learning this strategy is strongly recommend that you read the previous article in this series). Here you will learn about the first and most fundamental strategy - Power Trader, on the basis of which will already be built all the rest.
In the System Power Trader uses two screen (as an example we take a pair of time frames M5 and M15). On a larger time frame (M15) we will seek conditions for the trade, and youngest (M5) - directly entry point. Trade will be conducted in the direction of short-term and long-term trend in the larger time frame.
Signals indicating the open long position (Buy)
The entire process, from finding the prerequisites for entry into the market and ending with the closing of the trade consists of 10 steps. Let us consider each of them.
On the larger timeframe (M15) Moving Averages and custom indicators (GHL and QTI) should form a specific set:
- Price is above EMA 3
- EMA 3 is located above the EMA 5
- EMA 5 is located above the EMA 15
- EMA 15 is located above the EMA 45
- Indicator GHL is colored green
- Indicator QTI is colored green
On the larger timeframe (M15) price should revert and touch the moving average EMA 5.
When price touches the EMA 5, moving average EMA 3 very likely fall below EMA 5. There is nothing to worry about. Main thing that EMA 5 remained above the EMA 15 and EMA 15 remained above the EMA 45.
One of the most frequent questions: "Should the candle that touched the moving average closed below it?" The answer is - no. Candle in an uptrend, which concerns the EMA, will be bear (red).
At the intersection Price and EMA can draw a cross of horizontal and vertical lines to youngest TF see the point of intersection (this trick is especially useful when testing the system on historical data).
Switch to a smaller time frame. As mentioned above, using this TF, we will take a trading decision. As was previously selected pair TF M5 and M15, therefore switch to M5.
On the lower TF expect a buy signal.
- Closing price of the candle should be above all the moving averages.
- EMA 15 should be above 45 EMA.
Both custom indicators should be green.
Switch on the senior timeframe in order to check whether there were bullish trend.
Rollback can sometimes be too deep and, in fact, it becomes not rollback, and reversal in the opposite direction. It works so filtering mechanism potentially losing trades. If, for example, on a larger time frame one (and the more both) custom indicators turned red or missing the correct location of the MAs, the trade should not go.
Switched back to younger TF and determine the Stop Loss level.
In most cases, when you open the trade to Buy the Stop Loss is placed just below the nearest local minimum. But there are other options:
- Stop-loss is placed below the moving average EMA 5.
- Stop-loss is placed below all the moving averages.
One variant or another for Stop Loss can be selected depending on the market volatility.
Open positions on a smaller TF.
When we know the Stop Loss level, we can easily calculate the level of risk and volume to enter the market (for ECN accounts for the Stop Loss level will expose a separate order).
Determine the level of Take Profit.
If the Stop Loss is set at the level of the previous local minimum, Take Profit level should be selected in a 1:1 ratio. Upon closer Stop Loss (under moving average EMA 5), the ideal relationship between the Stop Loss and Take Profit - 2:1.
Continue to control the position.
When inept management positions even successful trade can turn into a loss-making. As profit growth should gradually move the Stop Loss to the entry point. Another option when new candles the Stop Loss can be moved gradually moving average EMA 5. If the EMA does not remain in the horizontal position, the Stop Loss also remains at its original position.
Step 10 (Optional)
If necessary, use a trailing stop.
An alternative to a fixed take profit can serve as a trailing stop. In some cases, the profit can be increased in two, three or more times. However, it also happens that using trailing stop, have to be content with a few pips.
Question asked by many people (especially beginners) traders: "When I use a fixed take-profit, and when - trailing stop?" Answer to this question does not exist. The only option - a thorough testing of the trading system or follow your intuition in each case.
When you open a Short position all the rules should be the opposite.
What to do when the indicator QTI painted gray
When the indicator QTI painted gray (while maintaining the desired color of the indicator GHL), this case should be considered as favorable, in which you can open a position.
In such a scenario, usually on a time frame M5 violated the order of the moving averages, they intersect with each other (once again pay attention to that the indicator GHL on the M15 should be green).
Such trades a little more risky, but often successful. Even when crossing MAs on youngest time frame should wait until when candle closes below of all moving averages, and both custom indicator will be green (if the short position is the opposite).
In the archives Forex_Strategy_Master.rar:
- Forex Strategy Master.tpl
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