While in trend, price tends to move in zigzag pattern that could be fit into a tunnel. The tunnel can be manually drawn or even better, we can use indicators such as envelopes and Bollinger bands to draw it for us. This forex strategy utilizes BB tunnel and plays with its whole range using tight stop loss, break even condition and profit target at opposing tunnel side.
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Both target profit and stop loss condition are volatility dependent and adjusted on trade to trade basis. To secure the position, break even function is used. To make sure we take trade on the right side of the market we will use alligator forex indicator.
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Strategy was tested on high quality historical data since 2003 with great results. At theforexkings we provide you with free and complete rules together with fully functional free expert advisor that is able to trade it and test it.
Forex strategy tools and indicators
Following settings were used to achieve results provided in the screenshots.
Alligator forex indicator (130, 80, 50). All three lines must be aligned according to the downtrend / uptrend. We will take trades only in the direction of trend. Adjust alligator periods to modify the expert performance. We have tested it only for above mentioned combination of inputs. It is clear that using different setting for alligator will improve the strategies results.
Bollinger bands (BB deviation 3, period 20) Bollinger bands will draw a volatility dependent price tunnel. Price must move outside the tunnel boundaries and close back within the tunnel to trigger the entry – price bounce. Adjust the indicators period and deviation to apply in other currency pairs and timeframes.
Break even condition (after 70 pips). After position reaches a predetermined profit, stop loss is placed on entry price. This will protect us from some winners turning losers.
Forex strategy rules
SELL
All alligator lines aligned according to downtrend conditions. From the slowest at the top to the fastest at the bottom. Lines must be clearly separated and untangled. We will be looking only for short entry.
Signal: Price moves above the upper BB line (high of a candle). Once it closes back within tunnel we enter the trade short on new candle open.
Stop loss is placed at the last candle high above upper BB.
Position is liquidated once the price reaches the opposite end of a tunnel and buy signal occurs (without considering the alligator lines while closing position).
Break even: Stop loss is moved to break even once the profit of position reaches 70 pips.
BUY
All alligator lines aligned according to uptrend conditions. From the slowest at the bottom to the fastest at the top. Lines must be clearly separated and untangled. We will be looking only for long entry.
Signal: Price moves below the bottom BB line (low of a candle). Once it closes back within tunnel we enter the trade long on new candle open.
Stop loss is placed at the last candle low below bottom BB.
Position is liquidated once the price reaches the opposite end of a tunnel and sell signal occurs (without considering the alligator lines while closing position).
Break even: Stop loss is moved to break even once the profit of position reaches 70 pips.
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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.
