Forex
Strategy Master is a trend following strategy
The
purpose of Forex Strategy Master is a system that identifies high
probability low risk profitable trades. We will be using the custom
indicator, Support and Resistance, along with exponential moving
averages and the MACD to look for trades.
Time
frame 5 min or higher.
Currency
pairs: major and minor (from 15 min time frame).
This
strategy works good in trendin market.
Metatrader
4 Indicators:
1.
SuppRTF;
2.
Exponential Moving Averages;
a.
15 EMA applied to High;
b.
15 EMA applied to Low;
c.
200 EMA applied to Close;
3.
MACD (12, 26, 9 applied to Close).
SuppRTF
(Support & Resistance Timeframe)
This
indicator are the blue and red dots that form a line along swing
highs and swing lows. It works like fractals but better because it’s
easier to tell if price exceeds the swing levels, which is an
important condition for finding trades. Here, a swing high is formed
if a candle is preceded by 3 candles with lower highs and followed by
another 3 candles with lower. The opposite goes for a swing low. Blue
dots mark the swing highs while red dots mark the swing lows.
The
levels indicated by the SuppRTF indicator can be considered as minor
support and resistance levels of the particular timeframe they are
found.
On
the image above, the blue dots along the swing high represent the
resistance level while the red dots along the swing low represent the
support level. If price exceeds them, it means price will most likely
continue to move in that direction.
Exponential
Moving Average
15
EMA applied to the high (Dodger Blue)
15
EMA applied to the low (Magenta)
200
EMA (White)
These
moving averages will help us identify when and where we will enter
our trades. I’ve added the moving averages over our first indicator
below.
The
15 EMAs will be used to identify the following:
1.
Direction of the short term trend.
2.
Point of entry.
3.
Stop loss and Trailing stop levels.
The
magenta and dodger blue 15 EMA lines form a channel, which helps us
identify whether price is in an uptrend, downtrend, or ranging.
Price
is in an uptrend if it is above the dodger blue line, and it is in a
downtrend if it’s found below the magenta line. However, if price
is suspended within the channel, we are in a range-bound market. As
we already know, we only buy in an uptrend, sell in a downtrend, and
enter no trades in a range-bound market. However, because the 15 EMAs
are short term moving averages, they are limited in their ability to
identify the general trend and can give out false signals if we do
not consider the bigger picture. This is where the 200 EMA comes into
play. If our channel forms above the 200 EMA, then we need to be
looking for buy trades only.
If
it’s under the 200 EMA, then we look to place sell trades only.
Remember,
we want to get the highest probability of winning trades while
risking very little. That can only be possible if we enter in the
right direction at the right time. Let the big guys start to move the
market before we enter our trade, enjoy the ride and bail out before
the market runs out of steam. I’ll show you more about this as we
go along.
Moving
Average Convergence Divergence (MACD)
The
MACD will also help us confirm the trend of the market. This is based
on the convergence or divergence of moving averages set in its
parameters. I like this indicator because of its ability to signal
the early onset of a change in the trend and thus prevent us from
entering a trade late in the game.
The
MACD has 3 basic parts: the zero line, histogram and the signal line.
The zero line serves as the midline or borderline between uptrend and
downtrend. If the histogram forms above this zero line, the market is
considered to be in an uptrend, while it is in a downtrend if the
histograms form below it. The signal line helps to identify points of
entry and gives warning signs for price reversals. The histograms
cross above the signal line if price is moving up and they cross
under the signal line if price is moving down.
Below,
you can see that price was initially in an uptrend. The price was
above the dodger blue line, the channel was above the 200 EMA, and
the MACD as above the zero line. But as price began to move down,
MACD histograms also started to cross under the zero line. This meant
that price is now beginning to reverse. Not long after, price had
crossed under the 200 EMA, pulling with it the channel that also
crossed under the 200 EMA. At that point, the MACD is totally under
the zero line, confirming the down trend.
Long
Entry Rules
1.
Price and EMA channel are above 200 EMA.
2.
Price makes a swing low above the 200 EMA, which means red SR dots
must form above 200 EMA.
2.
Price closes above the dodger blue EMA 15 (applied to high).
3.
Enter a buy trade if MACD histogram is above the signal line. For
additional confirmation (optional), the MACD histogram is above the
zero line as well.
4.
Stop loss along the magenta EMA 15 (applied to close).
5.
Take profit at 1:1. You have an option to trail your stops instead
of, or along with, placing a hard target. Trail your stop under every
new swing low or magenta 15 EMA line.
Long
Example :
Here’s
a trade on the GBPUSD 4 hour chart.
The
200 EMA is way below the price and the 15 EMA channel. Price closed
above the upper channel line and the previous SuppRTF level before
closing. At this point, the MACD histogram is above the zero line and
crossed above the signal line, so we can place a buy trade.
Set
the stop loss along the lower channel line and the take profit at the
same distance as the stop loss. If you have time to monitor the
trade, you may trail the stop loss along the magenta line then under
every new swing low that formed, based on the newly formed red
SuppRTF dots.
Short
Entry Rules
1.
Price and EMA channel are under 200 EMA.
2.
Price makes a swing high under the 200 EMA, which means blue SR dots
must form under 200 EMA.
2.
Price closes under the magenta EMA 15 (applied to close).
3.
Enter a sell trade if MACD histogram is under the signal line. For
additional confirmation (optional), the MACD histogram is below the
zero line as well.
4.
Stop loss along the dodger blue EMA 15 (applied to high).
5.
Take profit at 1:1.You have an option to trail your stops instead of,
or along with, placing a hard target. Trail your stop above every new
swing high or dodger blue 15 EMA line.
Short
Example :
Below
is a sell trade on the USDCHF 1 hour chart. Price and the 15 EMA
channel had been under the 200 EMA for some time now indicating a
down trending market.
Price
breaks under the magenta line and the red SuppRTF. At the bottom, we
can see that the MACD histogram is below the zero line and the signal
line, so we can place a sell trade at the close of the candle.
Set
the stop loss along the blue channel line and the take profit at 1:1.
In less than 30 minutes, price tagged the take profit and the trade
was closed.
“Written
by Russ Horn”
Post a Comment