This forex strategy uses reliable entry pattern – testing candle, to enter the trade in the direction of trend. Trend is identified using CCI (commodity channel index) with extremely long calculation period.
Indicator is able to identify the trend which makes positive result of position much more likely. Testing formation alone can produce some phenomenal results as it is based on fundamental market principle of testing.
Testing is market makers tool to determine interest of general trading public in trend reversal. If market responded with strength to testing, trend is still healthy and will continue to move in its direction.
Used forex indicators
CCI (commodity channel index) 120. Additional 0 line is added to indicator window to separate downtrend from uptrend. Uptrend: CCI above 0. Downtrend CCI below 0.
Testing candle will be our simple entry signal that will also provide stop loss levels.
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Forex strategy rules
CCI trending above 0 line.
Test candle: Bearish candle with extremely tall bottom wick. Wick is at least 2x size of the candle body.
Reaction candle: Test reaction candle will confirm the signal. Very wide bullish candle closing above the high of test candle. We enter the trade long on its close.
Stop loss is placed below the low of a test candle.
Take profit. CCI crossing 0 line downwards. After price travels distance that equals the signal range in profit, we move stop loss to break even.
CCI trending below 0 line.
Test candle: Bullish candle with extremely tall upper wick. Wick is at least 2x size of the candle body.
Test Reaction candle: Test reaction candle will confirm the signal. Very wide bearish candle closing below the low of test candle. We enter the trade short on its close.
Stop loss is placed above the high of a test candle.
Take profit. CCI crossing 0 line upwards. After price travels distance that equals the signal range in profit, we move stop loss to break even.