The strategy is aimed at detecting the movement of price at the early stages and at the same time it ensures that you do not enter the market too early helping you avoid losses. Note that it is not recommended to use this strategy during the night, as a number of false signals at this time of the day increases.
Now, let’s review the strategy. On the chart of the trading instrument there should be four moving average lines. They can be indicated as A,B,C,D with the following parameters:
A – red Moving Average, the type of МА – Exponential, applicable to the High with the period 20.
B – purple Moving Average, the type of МА – Exponential, applicable to the Low, with the period 20.
C – brown dotted Moving Average, the type of МА – Exponential, applicable to the High, with the period 10.
D – blue dotted Moving Average, the type of МА – Exponential, applicable to the Low, with the period 10.
We will also use a standard Indicator “Relative Strength Index” with the period 12 and the levels of 45 and 55 and moving average E on the Oscillator F.
Let’s look at Figure 1 and get a view of the potential buy signals and the rules of entering the market. First of all, make sure that the candlestick is closed above the moving average K. As soon as one candlestick closes, another one will emerge. A new candlestick shall be above the red moving average. You shall also make sure that RSI and its moving average demonstrate a buy signal on the chart. The lines of the indicator shall be above the level of 55 and also above the moving average E. If a buy signal is confirmed, you can immediately enter the market. However, you must ensure that you do not misinterpret the direction of the trend. It is recommended to place pending order BUY Stop above the price High of the first candlestick with a stop-loss and slightly below the line B.
In case of the rise in price: if stop order has not triggered and the price is moving in the favorable direction, we can shift stop-orders (any change in price is accompanied by a shift of the stop-order) slightly below the line B. In cases when the trend is confirmed, stop orders should be shifted below the line D.
The example on the figure 2 shows that in this case your order would have closed by the stop order near the price level of 1.6883 and profit would have amounted to 22 points. At the same time, the chart of the indicator clearly demonstrates the divergence, which is a signal of the trend reversal in the market. Therefore, our position could have been closed with the profit of 40 points.
The same rules are applied for opening short positions on the instrument.