“Forex Grail” is what traders call a successful strategy, which practically always yields you winning trades. Traders spend months, if not years, searching for the Grail, but all in vain. There are no ideal trading methodologies, though the right approach can turn almost every strategy to Grail-like trading system.
Rules for creating an ideal trading system:
- - A strategy shouldn’t be overloaded with technical indicators. The rule “the more indicators, the better” doesn’t work. A professional trader can make profit using simple classical tools (moving averages, Bollinger bands, oscillators, etc.) and combining them in a right way.
- - First a trading system is tested on a Demo Account, and then – on a cent account on 100-200 trades, with the basic indicators fixed; the maximum profit and drawdown, a series of profitable and loss-making trades, the profit/loss ratio. When being tested the trading system is optimized by setting of parameters and indicators, trying to reach the optimal risk/return ratio. In case the system’s statistical performance indices on a real trading account deviate from the test figures, the trading is stopped until the cause is found.
- - The trading system success greatly depends on the trader’s psychology. The key to success is keeping calm, controlling your emotions, risk minimization and self-confidence.
I prefer to use combined indicators in the strategies. These indicators are based on the modified classical tools. Further I will give the examples of such indicators which can be downloaded and installed in MT4 for free. The strategies are proven to be rather (fairly) effective. It is important to observe the rules of risk management and not to chase (quest for) unlimited profit.
1. The strategy “ Bollinger Bands and MCAD”
The simplest channel strategy which is based on the single combined indicator. It consists of:
- Bollinger Bands is a channel base indicator which indicates the borders, support and resistance levels. The breakout of the borders signals appearing of a new strong trend , but most often the trend is reversed from the channel borders, that is what the strategy is built on (is founded);
- MACD is the indicator used for testing the trend strength and direction, it is based on moving averages.
The combined indicator can be downloaded for free at this link. Having downloaded the archive you should save it into the folder MQL4/Indicators. Then find in the Charts /template menu the needed indicator template and run it. The recommended settings BB_MACD are already in the template and it’s better not to change them without deep understanding of the indicator’s working principles.
It is better not to apply BB_MACD to illiquid currency pairs, because basic tools (instruments) belong to volatility indicators. I would recommend the classical pair EUR/USD and the M30 timeframe.
BB_MACD is painting red dots under the red line. This can be a single dot but the signal will be stronger if there are several dots in a row.
Conditions for opening long position:
- BB_MACD paints red dots under the red line. This can be a single dot but the signal will be stronger if there are several dots in a row.
- After the appearing of red dots on the next or the second candle above the red line, the green dot appeared.
The position can be opened on the next candle.
I recommend Stop Loss at level 10. Leaving the market (market exit) should be consecutive: as soon as you get a 15 point profit, half of the positions need to be closed, and the other half needs to be protected by trailing stop for 15 points and be let floating. Opening a short position is totally opposite; first, a series of green dots has to appear above the blue line and after that a red dot under the blue line needs to be painted.
Advise: if the channel formed by Bollinger bands seems narrower compared to the prior period, it is better not open the position irrespective of the signals.
2. Fast Trend Line Momentum
Momentum oscillator is included in the majority of trading platforms as a basic tool. Its aim is to measure the rate of asset price change over a certain period comparing the price at the present moment with that of several periods ago. Fast Trend Line Momentum is a modified Momentum which is calculated not on the basis of the closing candles’ price but on the basis of more smoothed trend line, and the indicator itself provides more precise signals.
Currency pairs, any liquid assets, time frame – 1 hour. The oscillator can be downloaded here.
Conditions for opening the long position::
- Oscillator paints a series of three or more red columns in a row below “0”. There shouldn’t be any green columns.
- The last painted column should be below the level -0.002.
- After all the conditions have been fulfilled a green column appears on the chart. The signal will be even more precise, if there is a rising candle on the on the green column.
Once the column has been painted, we open the position.
When to close the position, everyone decides for themselves, depending on their risk appetite and the market nature, but I would recommend not to overstay the position and to close half at the level of 10 points. The conditions for opening sell positions are the opposite.
3. Stochastic + CCI + RSI
In this indicator three basic tools are combined, they are often used in the strategies for beginners:
- Stochastic oscillator displaying the oversold and overbought levels of the asset.It’s used for marking pivot points.
- CCI is an indicator displaying the general speed of the asset quotation changes in the market.
- RSI is relative strength index, also helping to define potential points of trend reversal and a start of a new trend.
The simultaneous combining of the three oscillators in one indicator, displaying their weighted average, helps to follow the market conditions. However, the strategy doesn’t provide precise signals for opening positions very often. Currency pairs, any liquid assets, time frame – 1 hour.
The combined indicator can be downloaded at this link. I recommend to leave the default configuration. Pay attention to the parameter weight, this is the weight coefficient of each oscillator in the total indicator formula. It can be corrected in the range from 0 to 1. For CCI and RSI it is set 0.1 by default.
Conditions for opening the long position:
- green line is lower than level -50;
- green line is above level -50;
- green line crosses the red one from below.
After all the conditions have been fulfilled the position can be opened on the next candle. The bigger is the crossing angle, the more precise is the signal. If the green line crosses the red one almost parallel the signal can be false.
The sell position opens under the opposite conditions, but with the level 50 and when the green line crosses the red one from above. The indicator can be applied together with the other instruments, moving average or graphical analysis.
Conclusion. These simple strategies are convenient because they aren’t overloaded with unnecessary indicators and the opening points can be easily seen. Applying of a single combined indicator instead of 2-3 basic ones saves trader's time and makes it easier to control the market situation. Recommendations on the strategies optimization:
- define the time when the strategies provide the most frequent and precise signals;
- don’t use these strategies trading flat or when the news is released.
- if the strategy provided three loss-making signals in a row take a break or change the settings.
If you have any questions or comments, let’s discuss them below.
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