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Setting Up the "Support and Resistance Based on 240 Bars" Trading Strategy

Author : Andrey Goilov

10.01.2023-1536x662.jpg

Dear Clients and Partners,

Today we will look at the medium-term Support and Resistance Based on the 240 Bars strategy. Support and resistance levels will be automatically plotted using the SF Trend Lines indicator as "bullish" and "bearish" channels. The strategy involves trading the pairs EUR/USD, GBP/USD, USD/JPY, USD/CAD, USD/CHF, and NZD/USD on the four-hour chart.

In this article we will explain how to add the indicator to the trading terminal, discuss the rules for opening and closing positions, as well as the subtleties of setting Stop Loss and Take Profit.

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Setting up the SF Trend Lines indicator

  • Download SF Trend Lines
  • Add it to the installed trading terminal by opening the MQL4 folder and pasting it into the Indicators folder
  • Add an indicator to the chart in MT4, working from the menu: Insert β†’ Indicators β†’ Custom β†’ sf-trend-lines
  • You can change the colour of the trend lines in the settings, but it is important to leave the number of bars at 240 unchanged


SF Trend Lines builds a price channel with the upper boundary acting as critical resistance, so a pullback is expected from it. The lower boundary of this channel is a critical support area, so an upward bounce is expected from it.

The indicator does not build the entire chart with channels; it builds only the actual channel, which means you cannot assess the quality of signals on the history of the chart – only in real time. There can only be one channel on the H4 chart.

How to Buy with Support and Resistance Based on 240 Bars

1. The price should reach the bottom of the uptrend channel on the SF Trend Lines indicator chart.

2. The Williams' Percent Range (Williams' %R) indicator can be used as a confirmation signal. Its values should fall below the -80 level.

3. Stop Loss can be set behind the lower boundary line of the SF Trend Lines channel. If the price has already fallen below this line and rebounded, then the Stop Loss should be set 5-10 points below the candlestick's low.

4. Take Profit is based on a 1:4 profit/loss ratio. If Stop Loss is 30 points, Take Profit is 120.

Support and Resistance Based on the 240 Bars Buying Example

  • On the chart of the currency pair EUR/USD on 6 February 2023, after rebounding from the upper boundary of the "bullish" channel where there was a strong resistance level, the price fell and tested the support line of the indicator SF Trend Lines
  • The Williams' %R indicator was below -80, indicating that the currency pair was severely oversold


Pic-6.png

Sincerely,
RoboForex team

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How To Use the Rate of Change (ROC) Indicator in Trading

Author : Victor Gryazin

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Dear Clients and Partners,

In this material, we will introduce you to the Rate of Change trading indicator. We will consider the peculiarities of its work, the formula for its calculation, and the signals that can be used in trading.

What the Rate of Change indicator shows

Rate of Change is a technical indicator showing the magnitude and speed of price change over a specific period. It compares the quotation of the current time period with the past ones, indicating the percentage of change in the price. The obtained data helps to evaluate the current dynamics of the selected financial instrument. Rate of Change is like the popular Momentum indicator.

ROC helps to determine what kind of trend the market is currently in and whether it is accelerating or slowing down. The greater the growth of the indicator, the stronger the optimism of the market crowd and the higher the probability that prices will continue to rise. A drop in the indicator value indicates an increase in pessimism in the market and the likelihood that prices will continue to fall.

Rate of Change is plotted in a separate window below the price chart and is represented as one main calculation line and a horizontal 0 level. The ROC line confirms (or does not confirm) the breakdown and rebounds from the support and resistance lines on the price chart, and helps determine the direction of the current market trend:

  • A rising ROC above 0 confirms that an upward trend is in force
  • A below 0 and falling ROC confirms the presence of an active downtrend


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The formula for calculating the Rate of Change

ROC = (Close(i) Β - Close(i-n)) / Close(i-n) * 100%

Where:

  • Close(i) - the last closing price.
  • Close(i-n) - closing price of n periods ago.
  • n - is the period of the indicator.


This indicator in its classic version is used with a default period of twelve. It is always possible to experiment, evaluate its work with other periods on historical data, and choose the most suitable one for your trading.

Installing Rate of Change in the trading terminal

Rate of Change is not a pre-installed indicator, so to use it in the popular MetaTrader 4 terminal, you need to download and install the indicator file. The file can be found on the Internet or on the website of MetaQuotes Ltd.

To install the indicator in the MetaTrader 4 main menu, go to File, select Open Data Folder β†’ MQL4 β†’ Indicators, and copy the file to this folder. After restarting the terminal, ROC will be installed in the Custom Indicators folder.

Next, install it on the chart of the desired instrument through the main menu of the programme: Insert β†’ Indicators β†’ Custom β†’ ROC. It is usually used with default settings (Rperiod=12), you can customise the colour and style of the main line.

Rate of Change trading signals

Rate of Change is not a pre-installed indicator, so to use it in the popular MetaTrader 4 terminal, you need to download and install the indicator file. The file can be found on the Internet or on the website of MetaQuotes Ltd.

To install the indicator in the MetaTrader 4 main menu, go to File, select Open Data Folder β†’ MQL4 β†’ Indicators, and copy the file to this folder. After restarting the terminal, ROC will be installed in the Custom Indicators folder.

Read more at R Blog - RoboForex

Sincerely,
RoboForex team

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How to Choose a Currency Pair for Trading in Forex?

Author : Victor Gryazin

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Dear Clients and Partners,

A beginner trader often asks themselves: which currency pair should they choose for trading? In this review, I will address the most popular currency pairs and enumerate the criteria for choosing the most suitable ones.

What is a currency pair?

A currency pair is the quotation of two different currencies that constitutes a currency rate and acts as an object of operations in Forex.

The standard view of a currency pair is:

Base currency/Quote currency

A trade operation means that the trader sells or buys the base currency against the quote currency.

The base currency is the one on the left – it is the currency that you sell/buy. The quote currency is the one to the right – it expresses the price of the base currency.

For example, look at the EUR/USD (Euro vs US Dollar) currency pair:

  • EUR is the euro, base currency
  • USD is the American dollar, quote currency
  • The current exchange rate of EUR/USD is 1.1270. which means 1 euro costs 1.1270 US dollars.


Forex is the world's largest financial market, displaying the current dynamics of global trade. It features a huge number of currency pairs – from famous to exotic ones. The most popular currency pairs which constitute the biggest volume of world trade are called major pairs. They are most often used for trading.

The characteristics of major currency pairs

Major currency pairs in Forex and the pairs that consist of the most popular currencies of the world economy. Presently, such currencies are the USD, EUR, JPY, CHF, GBP, NZD, AUD, CAD. It would be logical to add the CNH, or the Chinese yuan, here, but the rate of this currency is controlled by the Central Bank of China, so the CNH is not traded that actively.

  • EUR/USD is the euro vs the US dollar. It is the most popular currency pair. The trade volume of the currency pair is maximal here, while the spread is small and volatility is average. It is most active during the European and American sessions and reacts vividly on the news in the Eurozone.
  • USD/CHF is the US dollar vs the Swiss franc. Most often, it goes counter the euro/dollar pair; it moves calmly and has a small spread. The Swiss franc is a safe-haven asset, thus the pair may go down during crises. It is most active during the European and American sessions.
  • GBP/USD is the British pound vs the US dollar. The currency pair has increased volatility and is popular among traders. It may demonstrate mighty movements of several patterns or trigger nearby Stop Losses by false breakaways. The pound reacts dramatically to political events and economic data in Britain. The pair is most active during the European and American sessions.


How many currency pairs do we use in trading?

Many traders wonder how many currency pairs they should use in trading. I think, there are two approaches to the issue depending on your trading style:

Minimum pairs

This approach is based on the fact that each currency pair is peculiar, and the nuances of its behavior may be studied if you focus on one or two pairs. Spending some time on mastering one pair, learning the factors that influence it (important news, macroeconomic statistics), you may get a certain advantage.

A wide range of pairs

This approach is based on the use of certain trading patterns, Price Action patterns, candlesticks, etc. Having learned to find some pattern on the price chart and having made sure of its efficacy, we may start trading. For this approach, using a lot of currency pairs is reasonable: you scan the charts, find patterns, and get started.

Read more at R Blog - RoboForex

Sincerely,
RoboForex team

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Larry Connors' Double 7 Trading Strategy

Author : Victor Gryazin

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Dear Clients and Partners,

In this material, we will get acquainted with the "Double 7" medium-term trading strategy of the famous trader Larry Connors. We will learn what it is based on, and how it can be used in trading. We will consider its advantages and disadvantages and give an example of trading using this strategy.

How the Double 7 strategy works

The Double Seven is a fairly simple trading system that was introduced in the book β€œShort-Term Trading Strategies That Work”. It was written by the famous investment consultant and stock trader Larry Connors in co-authorship with the developer of trading systems Cesar Alvarez. The strategy was created for trading in the stock market, and the authors used it to trade major stock indices (S&P 500, Dow Jones) or index ETFs.

The Double 7 is based on the concept that when trading major market indices, an effective strategy is to buy on pullbacks in a major uptrend. A valid uptrend is defined as the price being above the 200-day Moving Average. A pullback is defined as a close below the lowest low of the last seven days, in which case a buy is opened. Once a buy is opened, one must wait for a new seven-day high to close the position.

After reading the trading rules, we can see that the "Double Seven" was developed for daily charts and is only used to open and close long positions in a rising market. That is, it works only in one direction – to buy the asset, shorts (short positions) are not used in this strategy and Stop Loss orders are not set. When tested by Connors and Alvarez, the system showed positive results on stock indices, ETFs, and highly liquid US stocks.

Setting the Moving Average indicator

This strategy uses the Moving Average indicator to determine the current trend. Moving averages are included in most modern trading terminals, plotted directly on the price chart. In the popular trading platforms, MetaTrader 4 and MetaTrader 5, you can install the Moving Average on the chart of the selected instrument through the Main Menu: Insert β†’ Indicators β†’ Trending β†’ Moving Average. In the setup window that appears, select period 200, line colour and thickness, MA method: Simple.

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How to trade the Double 7 strategy

The algorithm for using the strategy in trading:

  1. The price chart should be above the 200-day moving average, indicating an uptrend.
  2. We must wait for the day to close at the low of the last 7 days.
  3. If points 1 and 2 are met, a buy position is opened.
  4. The signal for exiting a position is to close the day at the seven-day high.


Advantages and disadvantages of the Double 7 strategy

Advantages:

  • Works well in a rising market, giving entry points into an uptrend after small corrections. The strategy generates profitable trades, as long as there is a strong uptrend
  • There is no "stop order" in high market volatility, as no Stop Losses are placed


Disadvantages:

Sincerely,
RoboForex team

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How to Beat Greed in Forex?

Author : Victor Gryazin

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Dear Clients and Partners,

The ability to control your emotions lies at the basis of your expertise as a trader. If a trader falls prey to their emotions, they lose control over their trading. This means breaking the rules of your trading system and, as a rule, ends in losing your money.

In this overview, we will discuss what is greed in Forex and how to beat it.

How does greed appear?

Many people start trading in the hope they will get rich in a short time. This misjudgment is supported by fantastic stories of success spread by the media. You might have heard of a young trader from the US Timothy Sykes who started trading in high school and earned his first million by the age of 21. Sounds amazing, doesn't it?

However, many neglect the fact that Sykes achieved this by long and painful training, making mistakes, losing money, but perfecting his strategy, and coping with his emotions. Experiences traders know that trading provokes the strongest human feelings and passions that you need to bring under control. A bright example is greed that can lead to losses and depression if you let it rule.

Greed is an unstoppable desire to own more and more fortune. Some might say that this is all personal, and there is nothing reproachable in the craving for more. However, greed is usually accompanied by unrealistic expectations and hopes, and a lack of self-control. This becomes a large stumbling rock in the trader's way to success because they start breaking their trading rules, which leads to losses.

Also, greed increases stress and nervousness that nag on the trader throughout their work. This is a direct way to exhaustion that makes it difficult to think rationally about trading in financial markets altogether. Hence, you need to know how to detect greed in the early stages and fight.

Main symptoms of greed

Let us have a look at the main symptoms that signal the advent of greed.

  • Unrealistic expectations


Ambitions are great when they are rational. However, when it comes to money, one's common sense often loses the battle to greed, especially if the first couple of trades was a success. Trading on a demo account, which is where most traders start from, is peculiar in the sense that there is no psychological barrier in it β€” the money is not real. On a demo account, trading is fun.

That is why many over-ambitious traders rush at switching to a real account. They think that if they made it on a demo, real trading will also go smoothly, so why to waste your time on sheer practice. Their expectations are too high, they imagine how they become millionaires in a week. However, real trading quickly sobers them, but the lack of due preparation and money-management skills leads to losses.

  • Poorly based hopes


A poorly based hope for a profit must in no way be the moving force for a trader. Such hopes, having no real support, lead to increased risks. This feeling is characteristic mostly of beginners, who hope that their trades will for sure bring them a profit if they wait for a little.
A classic example: a trader opened a trade and waits for the price of the asset to reach the desired level. But the market goes another way, and the trader obediently watches their deposit melt. Nonetheless, they do not close the position hoping that the market will soon reverse in their direction. This does happen sometimes but most often, this hope never comes true, and the trader suffers a serious loss.

Ways to control greed

To control your greed and prevent it from harming your trading, you have several proven methods:

  • Stick to your trading rules


The main instrument that helps traders beat greed is a reliable trading system. The latter is a set of certain rules that trading is based on. If a trader sticks to the rules, their greed is under control. They make trades based on clear signals, not the dream to become rich.

  • Track your emotional state


You must always know what and why you are feeling. If you feel that you have lost emotional balance, pause for a while. It will be wise to stay away from the market for a short while after a series of losing or profitable trades. Such series can provoke strong emotions that might harm your trading. Hence, you should stop and calm down before carrying on with your work in your normal balanced state of mind.

  • Control your risks


Risk control is an intrinsic part of trading. Money management is a way to manage your capital by a certain risk control pattern. In other words, this is a way to choose the part or share of your assets that you are ready to risk in each trade. Wise risk control helps you protect your deposit from greed and other emotions.

  • Use pending orders


The use of pending Stop Loss and Take Profit orders decreases the influence of greed on your trading. A Stop Loss limits losses (and protects the profit) when the market turns against the trader. A Take Profit will lock in your profit when the price reaches the specified value. This order helps to close a trade in time near the levels from which the price might correct or reverse.

Closing thought

Greed frequently harms trading in financial markets. Uncontrolled greed makes you violate your trading rules and might lead to serious losses. Hence, you need to detect the symptoms of greed accurately and use proven ways of beating it.

Read more at R Blog - RoboForex

Sincerely,
RoboForex team

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How to Test a Trading Strategy

Author : Victor Gryazin

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Dear Clients and Partners,

Today we will explain how to test a trading strategy. We will begin by explaining what a trading strategy is, why it needs to be tested, and how to do this. We will also give you some important recommendations.

What is a trading strategy?

A trading strategy is a trader's main tool that gives them an advantage in the market. In other words, it is a set of trading rules that have been tested in practice. The strategy can be considered successful if the total result of all deals made by using it within a specific period (month, quarter, year) is positive, i.e., profitable.

A trader's failure to have a clear, understandable, and practically proven system when trading can lead to a loss of funds. Making profit from random unsystematic trades is possible, but it will mostly depend on luck rather than experience and knowledge. You can only be successful in the long run if you use a proven trading strategy.

Why test a trading strategy?

Backtesting is the process of assessing how well a trading strategy can perform under past conditions. It is a key component in developing an effective system. There are various possibilities to change strategy parameters, and the adjustments made can have a significant impact on the results. Such testing shows the overall performance of an idea and checks whether some trading parameters will work better than others.

Testing the chosen trading approach on past data allows you to assess its effectiveness without any real monetary investment. The basic logic behind such testing is the assumption that a system that has worked well in the past is likely to also be effective now. Correct backtesting on historical data and obtaining positive results increases the trader's confidence that the idea will work. If the backtest shows negative results, the parameters should be changed or the chosen strategy should be abandoned.

Ways to test a trading strategy

You can test your trading approach on historical data or real trading conditions, either manually or by using special programmes.

Manual backtesting

Manual testing with historical data is a rather time-consuming process. This method is used when automated testing cannot be used for one reason or another.

Manual test scheme:

  1. A chart of the financial instrument is opened. All necessary indicators and tools for trading according to the strategy are installed. The desired timeframe and the period of interest in the quotes history are selected.
  2. The strategy then searches the chart for setups (conditions) for trades.
  3. When a strategy is detected, the trader records all parameters of the potential trade: date, entry point, direction, Stop Loss, Take Profit, trade result, and any other useful information.
  4. After a careful examination of all the potential trades found, their individual results and the total are analysed. A conclusion is made as to whether trading on this system will bring profit or loss.


If the strategy works at a loss, it is abandoned, or adjustments are made to improve its effectiveness. After the changes have been made, the strategy is checked again, and the process is repeated until it achieves an acceptable result. Manual testing of a trading strategy on historical data takes time and discipline. Correctly performed testing creates the conditions for a more accurate understanding of the level of success of the chosen approach and allows you to improve the practical skills of identifying setups for trading.

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Automated backtesting

Special software is used that finds trades that meet the strategy's criteria. It summarises profitable and losing trades to show whether the strategy has been effective over a certain period of time. There are many trading platforms that provide such testers nowadays.

Read more at R Blog - RoboForex

Sincerely,
RoboForex team

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How To trade the GBP/JPY Strategy Using the Bollinger Bands

Author : Andrey Goilov

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Dear Clients and Partners,

Today we will look at a short-term trading strategy based on the Bollinger Bands indicator with different timeframes. It is designed to work with the currency pair GBP/JPY on the M1 chart.

GBP/JPY is a highly volatile instrument, and the technical indicator will indicate instants when the price diverges significantly from its average fluctuation and there is a high probability of a move in the opposite direction.

How to trade GBP/JPY with the Bollinger Bands strategy

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We will show you how to use Bollinger Bands signals with three different deviation values. We will look at the position opening and discuss the Stop Loss and Take Profit rules according to the strategy.

Bollinger Bands in brief

Bollinger Bands is designed as a trend indicator, and it can show not only the direction of the current trend but also estimate volatility. It has three lines: a simple moving average with a period of 20 is positioned in the middle, while two other lines are positioned above and below, estimating maximum and minimum values. The extreme lines act as a floating support and resistance levels.

According to the author of Bollinger Bands, prices spend 95% of the time in the area between the bands of the indicator. Therefore, any price move out of this corridor can be seen as a reversal possibility and an imminent return of prices to average values.

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The behaviour of Bollinger Bands during strong market trends is also interesting. As a rule, in an uptrend, an investor wants to buy at the lowest price. In this case, one should expect the price to test the lower boundary of the indicator. In a downtrend, the investor wants to sell at the maximum price. In this case, the price is expected to test the upper boundary of the indicator.

How to set up Bollinger Bands

  • Add the Bollinger Bands indicator to the chart. To set the drawing period and colour of lines, double left-click on the indicator in the chart or right-click once and select "Properties" in the menu that appears. Then change the colour of the lines and the deviation value in the opened settings window.
  • Bollinger Bands with deviation 2 - select the red colour of the lines. Extreme lines of the indicator characterise the nearest support and resistance levels. According to the author of the indicator, the price very rarely moves beyond these lines
  • Bollinger Bands with deviation 3 - choose the blue colour of the lines. According to the author of the indicator, price moves beyond these lines are even rarer
  • Bollinger Bands with deviation 4 - choose the green colour of the lines. According to the author of the indicator, the price will reach these lines as rarely as possible, only at moments of peak volatility in the market


Read more at R Blog - RoboForex

Sincerely,
RoboForex team

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Reversal Patterns: How to Detect a Change in Trend Direction?

Author : Maks Artemov

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Dear Clients and Partners,

Imagine a distinct uptrend that has long been in the market. How do we know when it is over? Or, if a descending dynamics last long, how do we know where it reverses? These are the questions that many traders are perplexed by.

There is no unique answer to this question. The trend may reverse at any time, so the trader's task is to detect the time and place. There are lots of theories, practices, indicators, and other ways of market analysis meant for this.

Today, I will speak about a classical method of detecting a trend reversal. Watching the charts, market players have come to certain conclusions about the laws of price movements. At specific moments, the impulse comes to an end, and the trend changes its direction. Let us have a look at a group of reversal patterns, which are likely to precede a trend reversal.

What patterns do we look for?

Before speaking about reversal patterns, a small remark: candlestick patterns may have different names in different strategies and translations; moreover, they may differ slightly in appearance, however, their essence remains the same.

The main candlestick patterns at the top of the trend would be:

  • Shooting Star
  • Hanging Man
  • Doji
  • Gravestone Doji
  • Harami
  • Engulfing


Reversal patterns at the top of the trend

One condition, common for all reversal patterns, is the presence of a strong support or resistance level and a long-term trend.

Shooting Star

It looks like a candlestick with a small body and a very long upper shadow. It normally forms after the abrupt growth of the quotations. The lower shadow, in this case, will be short. Ideally, the body of the candlestick and the impulse have opposite colors (after a row of growing candlesticks, the Shooting Star is a descending one).

1-shooting-star-1200x540.png

Hanging Man
.
In essence, it is an inverted Shooting Star. The upper shadow is minimal or lacking, the body looks small, the lower shadow looks rather long. The Hanging Man is similar to the Hammer.

Doji

These candlesticks may form at any place of the chart and still have the name Doji. Other candlesticks are different, and we will discuss them later on.

A Doji looks like a cross or a "+". This means it has tiny shadows, and its body looks like a line because the opening and closing prices are on one line. Some Dojis have two long shadows and are called Legged Dojis; however, the signal they give is the same.

Reversal patterns at the bottom of the trend

Now - to the reversal patterns at the bottom of the trend. I should make it clear that the candlestick patterns themselves may look absolutely identical to those that form at the peak of the trend; however, they have different names. The work off is also the same: a trend reversal.

Hammer

It looks like the Hanging Man: a small body, a small or lacking upper shadow, and a long lower shadow. The only difference is that the pattern forms at the bottom of the trend.

7-hammer-1200x540.png

Inverted Hammer

It is similar to the Shooting Star: a long upper shadow, a small body, and an almost lacking lower shadow. Like the Hammer, it forms at the bottom of the trend.

Engulfing

It consists of two candlesticks. The first descending bar has a short body, the second one is visually larger, and its body covers up the projection of the first pattern.

Read more at R Blog - RoboForex

Sincerely,
RoboForex team

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