The second article in the series devoted to the Forex Strategy Master trading system (before studying this strategy we strongly recommend to read previous article из этой серии). Здесь будет рассказано о первой и самой фундаментальной стратегии – Power Trader, на основе которой уже будут строиться все остальные.
The Power Trader system uses two screens (let's take M5 and M15 timeframes as an example). On the higher timeframe (M15) we will look for the preconditions for the transaction, and on the lower one (M5) - the entry point. Trade will be conducted in the direction of the short-term and long-term trend on the older timeframe.
Signals indicating the opening of a long position (buying)
The entire process, from finding the prerequisites for opening a position to closing a trade, consists of 10 steps. Let's consider each of them.
On the senior TF moving averages and "bar" indicators (GHL and QTI) should form a certain set:
1. The "right fan" of moving averages from the junior SS to the senior SS is formed
- The price is above the 3 EMA.
- The 3 EMA is above the 5 EMA.
- The 5 EMA is above the 15 EMA.
- The 15 EMA is above the 45 EMA.
2. the GHL indicator is colored green.
The QTI indicator is colored green.
On the higher TF, the price should roll back and touch the 5 EMA.
When price touches the 5 EMA, the 3 EMA moving average is very likely to fall below the 5 EMA. There is nothing to worry about. The main thing is that the 5 EMA remains above the 15 EMA and the 15 EMA remains above the 45 EMA.
One of the most frequent questions: "Should the candle that touched the moving average close below it?" The answer is no. At uptrend the candle that touches the SS will be bearish (red).
At the intersection of price and SS, you can draw a cross of horizontal and vertical line to see the crossing point on a junior TF (this trick is especially useful when testing the system on historical data).
Switching to Junior timeframe. As mentioned above, using this TF we will make a trading decision. Since we previously selected the TF pair M5, M15, hence we switch to M5.
We expect a buy signal on the low TF.
- The closing price of the candle should be above all moving averages.
- The 15 EMA should be above the 45 EMA.
- Both "bar" indicators should be green.
Let's switch to a higher timeframe to see if there are still bullish trends there.
Sometimes rollback can be too deep and, in fact, it becomes not a pullback, but a reversal in the opposite direction. That's exactly how it works. mechanism of filtering potentially losing trades. If, for example, one (and even more so, both) bar indicators are colored red on a higher timeframe, or there is no proper fan of the averages, you should not enter the trade.
Once again we switch to the lower TF and determine the level stop loss.
In most cases, when opening a buy trade, a stop loss is placed just below the level of the nearest significant low. However, there are other options:
- The stop loss is placed below the 5 EMA.
- The stop loss is placed below all moving averages.
This or that option of a stop loss can be chosen depending on volatility market.
We open a position on a low TF.
When we know the level of stop-loss, then we can easily calculate the level of risk and volume, with which we will enter into a trade (on ECN accounts, the level of stop will have to be set by a separate order).
Determine the level of take profit.
If the level of stop is set at the level of the previous significant minimum, the level of take profit should be chosen in the ratio of 1:1. If the stop is closer (under the 5 EMA), the ideal ratio between the stop and the take profit is 2:1.
The procedure of placing a take is the same as for a stop (on ECN accounts it is necessary to place a separate order).
Continue to manage the position.
If the position is mismanaged even a good deal can turn into a losing one. As profits grow, you should gradually move the stop to the level of the entry point (ideally move it to the Breakeven). Another option: as new candles appear, the stop can gradually be moved along the 5 EMA. If the EMA does not remain in a horizontal position, the stop also remains in its original position.
Step 10. (Optional)
If necessary, we use trailing stop.
An alternative to a fixed take profit can be a trailing stop. In some cases, profits can be increased by a factor of 2, 3, or more. However, it also happens that by using a trailing stop, you have to be satisfied with only a few pips.
A question that many (especially novice) traders ask: "When should I use a fixed take profit and when should I use a trailing stop?" There is no answer to this question. The only option is to conduct a thorough testing of the trading system or follow your intuition in each case.