Envelopes forex indicator is used to establish price tunnel. Price crossing either of tunnel boundaries is traded as standard breakout. We will be using tight stop loss with take profit wider than typical. Additionally RSI forex indicator is used to identify trend and filter out corrections that could lead to price reversal.
Strategy works best in 1 hour timeframe but can applied on almost any currency pair in any timeframe. It is based in fundamental market principle of breakout, momentum and trend and therefore it is particularly salable.
Used forex indicators:
Envelopes forex indicator (period 20) Purpose: Envelopes with slow calculation period is used to draw a relatively stable and adaptable price tunnel, based on average low and high price. Price closing outside of its boundaries will be used as our entry signal. At the same time envelopes indicator will mark levels for our stop loss and take profit targets
RSI (relative strength index). RSI with calculation period 60 is used to filter out any other than trending market conditions. To use RSI in such a way using additional line (50) is required.
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Forex strategy rules
SELL
RSI 60 is trending below 50 line. This will signalize donwtrend and we will enter only short trades.
Envelopes indicator will provide a signal. We enter on price candle closing clearly below red envelopes line.
Stop loss is placed above the high of our signal candle.
Take profit: After the price travels distance that equals candle range we move stop loss to break even. Target profit equals distance between entry and blue envelopes line (it is mirrored downwards in the direction of trend).
Signal reset: We enter another trade in the same direction only after a trade closing or full body of candle (opened and closed) within the tunnel.
BUY
RSI 60 is trending above 50 line. This will signalize utptrend and we will enter only long trades.
Envelopes indicator will provide a signal. We enter on price candle closing clearly above blue envelopes line.
Stop loss is placed below the low of our signal candle.
Take profit: After the price travels distance that equals candle range we move stop loss to break even. Target profit equals distance between entry and red envelopes line (it is mirrored upwards in the direction of trend).
Signal reset: We enter another trade in the same direction only after a trade closing or full body of candle (opened and closed) within the tunnel.
