According to our practical experience and countless historical data tests, averaging can work extremely well when done in the direction of trend. Once we get our entry method out of the table, we can take a look on how to identify trend in the best way possible for our averaging purposes.
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The method we should generally use is scalable and can be traced back on historical data with high degree of accuracy. Trendiness are nice option, however they are extremely subjective. Same traders can see them differently before and after the morning coffee.
Two lizzards forex strategy uses two complete alligator indicators. One faster and one slower. The slower one will ensure that we stay on track with major market flow. The fast one will help us avoid entering into the massive correction, that can stop major trend.
After we define trend, position will be entered on each candle close. If our entry fails, it will be averaged with growing aggression and using the exponential function to put each consecutive trade little bit further away than previous one. This will result in the fact that larger the trade is, less margin for loss remains. Also, larger the trade at better price it is placed.
Averaging will help us survive and thrive during volatile market and in some cases even profit as the price moves against our initial entry consistently.
This forex strategy is traded by two lizzards MT4 expert advisor by theforexkings. Expert advisor was also used for testing. Let's look at the inputs used in testing and the forex strategy itself.
Tools and indicators used in forex strategy
Alligator (10x, 5x): Each alligator line must be aligned according to downtrend/uptrend – this applies for both alligator indicators independently. Period of the default alligator input (13,8,5) is multiplied by Default alligator multiplier (1:5x and 2:10x). This input will multiply each default calculation period of the indicator.
Averaging module (averaging interval -20): 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).
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 in test): Strategy increase lotsize of each consecutive averaging trade. Calculation: Increase factor*number of opened trades(averaged side)*lotsize+lotsize. Increase factor with value 1 is least aggressive.
MAX number of trades (5 in test): Expert advisor can work with more than one trade opened per side. This parameter will modify number of trades that can be opened per side at the same time.
Closing module (target profit 2 USD per 0,01 lotsize): Expert will close all existing trades at once as soon as the overall account profit reaches target profit/max loss. All existing trades will be closed also when opposite entry signal occurs. Use only on one currency per account and do not open any other positions. Modify targets proportionally with lotsize (in account currency).
Max loss: -150 USD in test. When using two lizzards MT4 expert advisor, do not forget to put –(minus) before the value.
Lot size: 0,01 lot in test.
Rules of the expert advisor
SELL
No long trade exists.
All alligator lines aligned according to downtrend (from slowest at the top to fastest at the bottom). This rule applies for both Alligator indicators independently.
If trade exists, account profit must be less than averaging module calculation criteria.
We enter short on candle close.
We close all existing short trades at: Target profit/max loss defined in inputs (adjust those proportionally to used lotsize).
BUY
No short trade exists.
All alligator lines aligned according to uptrend (from slowest at the bottom to fastest at the top). This rule applies for both Alligator indicators independently.
If trade exists, account profit must be less than averaging module calculation criteria.
We enter long on candle close.
We close all existing long trades at: Target profit/max loss defined in inputs (adjust those proportionally to used lotsize).
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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.
