This strategy is used if opened trading positions have been maintained for a few days. Trading decisions are made with the help of the indicator “Alligator,” which is based on the moving average lines with different periods. Our goal is to take advantage of the period when the price is moving from 100 to 250 points. According to statistics, about 50-60% of the time financial instruments are traded in the sideways channel, and only 20-30% of the time trading is carried out in the trend.
Therefore, you should be prepared to the fact that most of the trading operations will be closed at stop-loss. If money management is used properly, this strategy can bring good earnings.
However, to achieve this you shall fulfill the following conditions:
The first essential condition, which must be observed is that profit or the level of take profit shall be at least five times higher that the level of protective order.
The second condition: it is required to use Trailing Stop. For example, if the profit on the operation amounts to 50 points, it is necessary to move stop-loss into the breakeven zone, which will allow to reduce the number of losing transactions.
Thirdly, after testing this strategy we realize that the average number of the loss-making transactions in a row is usually not more than 5, which makes it possible to assume with the probability of 80% that the our transaction will bring profit. Based on this assumption we can double trading volume after the closure of every loss-making transaction, which will allow us to increase significantly the potential profit after the closure of the deal at take profit. However, be aware that the number of loss-making transactions can be more than five in a row, and the probability of this is 20%. Therefore, it is recommended to leave some more funds on the account and do not use all the money for trading.
In order to receive a trading signal to buy or sell, open a chart either for the pair EUR/USD or GBP/USD with timeframe H4 in the trading terminal. Then go to “Indicators” (if this icon is not activate, use CTRL+N), select “Alligator” and move it to the chart. It is also required to change the settings: the period of jaws shall be 22; the period of teeth shall be 13, and that of the lips is 10. The drift shall remain unchanged at 8, 5, 3.
When is the best period for opening sell positions?
The best period for transaction is the moment when moving average lines with the periods of 13 and 10 cross the moving average line with the period 22 from top to bottom. It is advisable to place stop-loss at the level of 25 points and take profit at the level of 150-200 points.
When is it recommended to start a buy transaction?
It is advisable to open buy positions when moving average lines with the period 13 and 10 intersect the moving average with the period 22 from bottom to top. Stop-loss is recommended at the level of 25 points with the take profit f 150-200 points.