Two things may happen, once the price reaches tunnel boundaries. It can either bounce off, or create a breakout. This forex strategy works with the first possibility. One of the main advantages of tunnel bounce approach, is the ability to use extremely tight stop loss. The risk/reward ratio therefore tends to be very interesting. This forex strategy was tested on high quality historical data since 2003 (EURUSD) with positive results.
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Used forex tools and indicators
DeMarker (DEM 150). Oscillator with high calculation period is used to separate trending from Ranging market and also uptrend from downtrend. In expert it is possible to adjust the middle range size and thus sensitivity for trend momentum vs. width of the range. In test, we have used more aggressive approach using simply a 0,5 line to separate uptrend from downtrend. All trades must and will be take in the direction of DEMM identified trend.
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Envelopes indicator (period 80, deviation 0,3). Envelopes is an indicator used to draw our price tunnel. While in the trend, we will expect the price to bounce rather than break the trend and reverse. Once price moves outside the tunnel only to close back within, we will plcae our order with tight stop loss. Opposite end of a tunnel will become our target profit.
Forex strategy rules
DeM trends below 0,5 line (sell below line in inputs). This will be considered to be downtrend and we will enter short trades only.
Envelopes signal. Price moves above upper envelopes line to close back within the tunnel. We enter the trade short on new candle opening within the tunnel.
Stop loss is placed at the high of last candle traded above upper envelopes line.
Take profit: Bottom envelopes line.
DeM trends above 0,5 line (buy above line in inputs). This will be considered to be uptrend and we will enter long trades only.
Envelopes signal. Price moves below bottom envelopes line to close back within the tunnel. We enter the trade long on new candle opening within the tunnel.
Stop loss is placed at the low of last candle traded below bottom envelopes line.
Take profit: Upper envelopes line.
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Disclaimer: Expert advisor was tested for profitability on historical data. All screen shots provided are displaying real results of the test. However past data will never guarantee future success. Every expert advisor needs to be tested properly on demo account. LIVE use only on your own risk. Read full disclaimer. TheForexKings Team does not give any financial advice. TheForexKings does not take any responsibility for any user’s investments and investment decisions. All rights reserved. Strictly for personal use.