Even after a valid breakout, correction can be often times observed. Price returns to the breakout zone to test it. If tests succeeds. Price continues to move in the direction of breakout. This forex strategy confirms the breakout and its correction (test) by placing a pending order at correction formation. Order being triggered confirms the breakout.
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Strategy uses moving averages to gauge the main trend direction. This plays a crucial role in breakout entry, as we do not want to enter a breakout going against the main trend. Those positions, even though offering a great RRR are rarely successful. Instead, we take a safe bet, going with the breakouts in the direction of main market flow.
Strategy draws a tunnel using bollinger bands. Fractals indicator are used to mark the correction – break of the wave outside of tunnel boundaries. Strategy uses advanced trailing stop that is based on fractals. It was tested for profitability on high quality tick data since 2003 (1H eurusd).
Used tools and indicators
Exponential moving averages (EMA 500 and 250) This configuration helps us to establish the trends in 1 chart of eurusd. Position of MA to each other helps us determine the trend direction. All trades will be entered only in direction of EMA identified trend.
Bollinger bands (BB period 60, Deviation 2) Indicator will draw a volatility price tunnel for us. Price closing either above or below tunnel will signalize possible breakout. We will look on fractals to confirm the breakout and place our pending order.
Fractals. Fractal wave outside the tunnel boundaries will tell us where to place the pending order. In other words. We do not enter the trade immediately on breakout. Instead, we wait for correction – new fractal being drawn at top/bottom of the wave. Once it closes pending order is placed.
Advanced trailing stop: It is placed at opposite extreme of the wave. It is adjusted with each fractal close. Additional distance of 100 pips can be applied to cover the market volatility.
Forex strategy rules
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EMA 500 trending above EMA 250 – downtrend.
Price closes below the bottom BB.
Lower fractal is drawn and closed below bottom BB. We place pending buy stop order at price low marked by this fractal (bottom of the correction).
Pending order will remain valid for 5 days.
After the entry, we wait for closing of first upper fractal. This will be our lead for trailstop placement. Apply additional distance of 100 pips. Adjust it downwards only, with each consecutive fractal close (same additional distance applies).
EMA 500 trending below EMA 250 – uptrend.
Price closes above upper BB.
Upper fractal is drawn and closed above upper BB. We place pending sell stop order at price high marked by this fractal (top of the correction/test).
Pending order will remain valid for 5days.
After the entry, we wait for closing of first bottom fractal. This will be our lead for trailstop placement. Apply additional distance of 100 pips. Adjust it upwards only, with each consecutive fractal close (same additional distance applies).
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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.