Horizontal tunnel fakeout and breakout FOREX strategy

This forex strategy uses fundamental principle of breakout that is often times coupled with fakeout. Both phenomenons are used to enter the trade with this forex strategy are working extremely well on all timeframes as they are fundamental for any freely traded instrument.

Alligator forex indicator will be used to further improve the signal accuracy and allow us to get the most out of every single trade. Alligator is simply a combination of moving averages that extremely well as trend identification tool.

 

Both fakeout and breakout will be entered in the direction of trend. Fakout will be entered first. Second entry occurs on breakout and its usually risk free as it is already covered by winning fakeout position.

 

Used forex indicators

Alligator forex indicator (130,80,50). Alligator will help us to enter only trend following trades, improving success rate by 15 – 30 percent. Breakout in the direction of trend is always more likely.

 

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Forex strategy rules

We draw horizontal tunnel.

We connect two bottoms (down swings) at the approximately same price. We draw support zone by connecting lows of bottoms, and candle closes above them. Draw them as zones.

We connect two tops (up swings) at the approximately same price. We draw resistance zone by connecting lows of bottoms, and candle closes above them. Draw them as zones.

We will distinguish between downtrend and uptrend by considering alligator forex indicator

 

BUY:

Uptrend: Alligator lines clearly separated and untangled lined from top to bottom: green, red, blue. We will take only long trades.

 

Fakeout signal: Price penetrating bottom tunnel boundary (support) only to close back within tunnel.

Once ii closes back within the tunnel we enter the trade long. Tight stop loss is placed at the low reached in fakeout.

We wait for price to penetrate upper boundary (resistance) and create a valid breakout – candle closing above the resistance. We enter long once again.

 

Stop loss placement. Once we enter the second, breakout position stop loss is placed approximately in the middle of the tunnel. Calculate its positions so in case of invalid breakout both positions will be closed in break even. (Profits protected from fakout position will equal loss reached by invalid breakout).

Full take profit equals max width of the range measured from breakout entry. Apply on both positions.

 

SELL:

Downtrend: Alligator lines clearly separated and untangled lined from top to bottom: blue, red, green We will take only short trades.

 

Fakeout signal: Price penetrating upper tunnel boundary (resistance) only to close back within tunnel.

Once it closes back within the tunnel we enter the trade short. Tight stop loss is placed at the high reached in fakeout.

We wait for price to penetrate bottom boundary (support) and create a valid breakout – candle closing below the support. We enter short once again.

 

Stop loss placement. Once we enter the second, breakout position stop loss is placed approximately in the middle of the tunnel. Calculate its positions so in case invalid breakout occurs both positions will be closed in total break even. (Profits protected from fakout position will equal loss reached by invalid breakout).

Full take profit equals max width of the range measured from breakout entry. Apply on both positions.

 

Notes: Signal is pretty infrequent. It is possible to trade it with higher leverage.

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