To find consistent entry in chaotic market is difficult. Trader needs to consider his signal event in confluence with other factors such as trend, support and resistance zones, trend lines, news events, volumes and fractal geometry of higher and lower timeframes.
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Even if he does everything right and on time – before the signal is gone. Chaotic nature of the market may just wipe the position out without any logic or reason behind it. The edge from such an entry remains small.
Traders will often find out that regardless the entry (momentum, formation or indicator), success rate and trading edge is mostly dependent on trend.
In other words, you can enter almost everywhere (with reasonable money management) as long as you got the trend right.
Chaos forex strategy is traded by Chaos warfare expert advisor by theforexkings that was also used for testing.
Main properties of this forex strategy
Chaos is unique trading system, using the concept of averaging, to get the best out of the price in the direction of trend. Exponential function based on open equity is used to put each consecutive trade further away from previous one, reducing margin requirements and lowering the risk as we add more trades to the initial one.
It uses standard (and thoroughly tested) model of trend identification – 4 moving averages (exponential) in two tandems. Reversal of Faster EMA tandems will signalize that we stop entering the trades in current trend direction (close only). Once the main EMA reverses (TR) al trades will be closed.
Averaging: In trend, system will close each trading group in profit. While trend lasts, trading system generates constant inflow on capital into the account in scalping range. Once the trend reverses, we close all existing trades.
Dealing with trend reversals: Due to the use of increase factor for averaging (adding to lotsize in progressive trades system is still able to close the trades in profit as the trend reverses. This gives the faster EMA tandem time to catch up and avoid further entry into the trend that may be reversing.
Closing of trades: Forex strategy accepts loss on trend reversal. All existing trades will be closed and we will switch market sides. Exponential function ensures that larger the trade is close it is to closing point (correction turning trend).
Used tools and indicators
This forex strategy is can be traded by chaos warfare MT4 expert advisor. Settings will be described as used in EA.
Main inputs of Chaos Warfare MT4 EA used to be able to trade this forex strategy:
Allow close all on trend reversal: TRUE
Add stop loss and take profit: FALSE
Allow hedge and overcompensate: FALSE
Two ema tandems (EMA filter 400,150 EMA main TR 600,300). In both EMA tandems position of fast Ema relative to slow confirms the trend (uptrend/downtrend).
Entry: On candle close (new candle open).
Max number of consecutively opened trades per side: 5
Averaging module: If trade exists, new trade can only be opened if overall account profit is less than: -(negative)Averaging interval*LOTSIZE*(EXPONENTIAL FUNCTION*NUMBER OF OPENED TRADES PER THAT SIDE). Warning: Chaos warfare (EA trading this forex strategy) works only on one currency pair per account. Also, manual trades cannot be opened while EA operates.
Averaging interval input (-20): Distance between consecutive averaging trades that will be calculated by averaging module. Each trade will opened on new candle open. If one candle covers distance equivalent to two or more averaging steps, more than one trade can be opened on same price level (but only on new candle open).
Increase factor (3): Strategy increases lotsize of each consecutive averaging trade. Calculation: Increase factor (3)*number of opened trades(averaged side)*lotsize+lotsize.
Closing of trades: We will close all existing trades per side at once as soon as the overall account profit reaches target profit (2 USD if we use lotsize 0,01 – increase proportionally). We close all existing trades on crossover of EMA TR (trend reversal). In expert, close all on trend reversal must be set to TRUE.
Expert advisor (chaos warfare) can only be used on one currency per account and also do not open any other positions. Modify targets proportionally with lotsize (in account currency).
Rules of the forex strategy
No long trade exists.
EMA fast trending below EMA slow. In both tandems. Downtrend is present in the market. Enter short only.
We enter the trade on candle close (new open).
If trade exists, new trade can only be opened according to the averaging rules (higher price). No more trades than max number of trades defined in inputs. Increase factor is applied on consecutive averaging trades.
We close all existing trade in overall account profit or loss. Trades can be closed at overall account profit (target profit) or at trend reversal (EMA fast TR closing above EMA slow TR – in expert advisor close at trend reversal input must be true).