This forex strategy takes into account second most important data after price itself – volumes. In decentralized forex market we can use only a tick volume. For the purposes of this forex strategy, tick volume is sufficient as it provides us with all the information necessary for profitable trading.
The premise of trading system is simple. We will look for quiet periods in market volatility represented by below average volume and price moving in relatively tight range. Afterwards, we will wait for market to decide which way to go. This decision is unavoidably coupled with increased volatility and trading volume. We will use simplified (VSA) to enter the trade in the direction of growing activity.
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Used forex indicators.
Volumes. Volumes indicator is broker dependent in forex, therefore use high quality ECN broker.
Multiple exponential moving averages (50,100,250). Apply all of them in window of volumes indicator. To do so, open a navigator window in MT4 drag and drop MA in volumes window, and apply the calculation of first indicators' data.
Envelopes forex indicator (30, deviation 0,1). Envelopes will help us to confirm a new price direction and determine possible profit target and stop loss.
Apply all of the indicators in 5 min chart of any major currency pair.
Rules for the forex strategy.
In volumes window look for the period of low activity. This will be represented by low volume for prolonged period of time, coupled with EMA lined from slowest at the top to the fastest at the bottom.
Signal always comes with growing activity represented by increase in volume and complete reversal of moving average position to each other. Signal comes once all of the EMAs are aligned from fastest at the top to slowest at the bottom.
Price will close above upper envelopes line. We enter the trade once all this conditions are met.
Stop loss: Stop loss is placed below bottom envelopes line.
Take profit: Price will close above upper envelopes line. We will exit the trade in profit once it closes back under the upper envelopes line.
Price will close below the bottom envelopes line. We enter the trade once all this conditions are met.
Stop loss: Stop loss is placed above upper envelopes line.
Take profit: Price will close below bottom envelopes line. We will exit the trade in profit once it closes back above the bottom envelopes line.
This type of trading requires some skill. This situations in forex are often somehow messy and trader needs to react quick and be able to adapt his position to market situation. Profit should be taken quick, and especially in volatile market. For example this could be both profitable and losing position, depending on traders' ability to recognize growing volatility fast and being able to exit the trade at top of the spike, instead of being greedy and waiting for volatile trade to develop further.