Sometimes by looking at the back data, you just know that trend identification method works. Alligator with ultra slow calculation period used in this forex strategy identifies trend with high accuracy, which helps tremendously with our breakout signal used in this forex strategy.
Breakout occurs on envelopes lines. Price itself determines stop and take profit levels. Stop loss is equal to take profit, therefore strategy is able to survive scalping even the ranging, chaotic market. In such a conditions losing and winning trades will be occurring at the equal rate, resembling a coin toss.
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Loss will be therefore just a matter of spread and commission.
Winning trades are about four times more likely (80/20). Longer Streaks of losing trades are infrequent. Partial martingale can be therefore used in some cases (although strategy doesn't require its use to be profitable).
Indicators used in forex strategy
Alligator forex indicator with period: 80,50,30 (jaws.teeth, lips). Ultra slow calculation period helps with main trend recognition and trading on the right side of the market.
Envelopes forex indicator (calculation period 14). By using trail and error method, we have found out that these settings are working the best.
Plot both of the indicators in EURUSD or USDJPY 1H candle chart.
Forex strategy rules.
Alligator line are clearly separated and untangled. There are lined according to downtrend from top to bottom: blue, red, green.
While alligator lines remain in this formation, we will take only short trades.
Entry signal: Candle clearly closing below bottom envelopes line (red).
Enter the trade short immediately on candle close. Protective stop loss is placed upon entry one pip above candle high.
Take profit: Distance between the entry and stop loss (high of the candle) is mirrored for profit target.
Alligator line are clearly separated and untangled. There are lined according to uptrend from top to bottom: green, red blue.
While alligator lines remain in this formation, we will take only long trades.
Entry signal: Candle clearly closing above upper envelopes line (blue).
Enter the trade long immediately on candle close. Protective stop loss is placed upon entry one pip below candle low.
Take profit: Distance between the entry and stop loss (low of the candle) is mirrored for profit target.
Notes: As we mentioned in the beginning partial martingale can be used to improve winning ratio. Instead of more frequent losses, we take one bigger loss once in a while. We do so only partially by trying to enter two more times, each time entering with double the amount of previous trade. We do so always on next candle, disregarding the range of the candle (and therefore profit and loss targets).