There is a tunnel within a tunnel. This is not some philosophical statement but a brief description of this forex scalping strategy, that was tested for profitability in over a 13 years of historical data. The system uses two very different calculation methods, to create two independent price tunnels. One of them is narrow and will identify breakout. The other one is wider. We will expect the price to bounce off of it. Therefore, we will use it as profit target.
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The strategy requires trader to draw two tunnels in the chart. Relatively common breakout signal is traded. We will be looking for narrow profit, expecting price to be more likely to bounce when reaching second, wider envelopes tunnel.
System was tested on historical data (4H eurusd tick) since 2003.
Used tools and indicators
Exponential moving averages (EMA 500,250) positioning of ema will identify main trend. This will increase accuracy of entry by about 15 – 20 percent. This is a tremendous advantage in any type of trading situation.
Bollinger bands (BB period 60, deviation 2) Breakout of tunnel boundaries will trigger the breakout position entry. We will be looking for candle close outside tunnel boundaries.
Envelopes (period 40, deviation 1,5) wider deviation is used. We want envelopes tunnel to close in the outskirts of BB tunnel. Price briefly closing outside of envelopes tunnel will signalize to exit the trade asap.
Advanced trailing stop (extra deviation 100 pips). TS is adjusted with each candle close, following the profitable trade. Extra deviation is applied to cover standard market volatility.
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Max open trades (1): Strategy allows opening more than one trade per side at the same time. During our tests, we have allowed opening just 1 trade per side.
Forex strategy rules
EMA fast trending below EMA sloe. Downtrend.
We will be looking for breakout of bottom BB band. Once price closes below the bottom BB (tunnel support), we enter the trade short.
Advanced trailing stop is placed above the high of signal (breakout) candle (extra distance applied).
Once the price close below the bottom envelopes line, we close the trade in profit.
EMA fast trending above EMA slow. Uptrend.
We will be looking for breakout of upper BB band. Once price closes above the upper BB (tunnel resistance), we enter the trade long.
Advanced trailing stop is placed below the low of breakout candle (extra distance applied).
Once the price close above the upper envelopes line, we close the trade in profit.
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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.