The strategy is applied to the major currency pairs: EUR/USD, GPB/USD, USD/JPY, AUD/USD and USD/CHF. It can be used on the timeframe M15 and further up.
This method is not really complex. It relies on the principle of roll back in price levels. Trading is carried out within the channel and from its borders. The most difficult and important thing is to spot trend direction. As an option you can use the indicator “Zigzag”. Boundaries of the channel, the lines of support and resistance, shall be built up along the spikes of the indicator. After that it makes sense to analyze price behavior. The location of the graph close to the resistance line will indicate probability of breakout. In this case, it is advisable to open long positions at the lower boundary of the channel. Consequently, do the opposite, if the price is approaching support level. You can use any other strategies or indicators in order to determine trend direction.
You can either enter the market directly, or with the help of pending orders. Suppose, the trend is “bullish” and the price is at the bottom boundary of the channel. We open a long position after which the price will predictably go up to the upper boundary, where we will have floating profit, and it is worth placing a trailing stop. If the boundary is broken out, we will get higher profit; if not, our order will be closed down at the stop-loss with a profit.
Now, let’s consider the situation after opening of the position that the trend has changed against our expectations. In this case we can open two positions opposite to the first one. For example, there can be two Sell positions; if the market continues to decline, profit will accumulate on your trading account from the first Sell position, the second position will hedge the loss caused by the trading Buy position, which means that finally they will compensate each other. As soon as Sell positions have covered the costs of the spread and achieved profit, it makes sense to close hedged positions and place trailing stop for the remaining positions.
Now, let’s review the situation when market resumes growing after opening of two Sell positions. In this case we shall quickly close down 2 overlapping positions and open two Buy positions. After that loss caused by the remaining Sell position will be locked by simultaneously closing one Sell and one Buy position. The remaining Buy position will bring us profit.
As a result - regardless of the trend direction we will be able to gain profit and benefit from either case. However, bear in mind that if you do not determine trend direction correctly quite often you can lose on spread and accumulated negative closed positions; therefore it is very important to determine trend direction adequately. This strategy does not provide for stop-losses, therefore it is not recommended to leave open positions until the next day.