Trading Strategy 19 – Envelope, ADX and Fibonacci

Time Frame: 4 hours, Daily and Weekly
Currency Pairs: All but recommended high volatility pairs
Indicators: Envelopes (14), ADX (14) and Fibonacci

The Envelopes indicator configuration is as follows:

For 4-hour chart, the deviation is 0.2%
For 1 day chart, the deviation is 0.5%
For weekly chart, the deviation is 1%

Envelopes indicator consists of two moving averages that make up two bands, upper (blue) and lower (red) and mark us  the price trend.

For this strategy, we have to be sure that the ADX line is above the value of 20, otherwise we do not enter into any transaction.

SIGNAL BUY / SELL

Buy: Expect a candle close above the upper band (blue) of the Envelopes and the + DI line is above 20, then it will open a buy order at the opening of the next candle.

Sell: Expect a candle close below the lower band (red) of the Envelopes and the -DI line is above 20, then it will open a sell order at the opening of the next candle.

OUTPUTS

The exits shall be marked by the Fibonacci retracement levels, both for purchase and for sale.

For this strategy, it is advisable to divide the total batch size will operate in two, three or four parts. Example, if the total size of each transaction that we introduce in the market is 1 batch, divide it into four operations of 0.2, 0.2, 0.3, and 0.3 each one on or three for 0.3, 0.3 and 0.4 lots. This is done to go out in every Fibonacci’s level that the price reaches.

We also recommend exit an operation when the line + DI or-DI fall below the value of 20.

In the above chart shows the EUR/USD in temporality of 1 day. The strategy gives us a first input signal at 1.2469, which leads us to seek Fibonacci level of 38.2% (1.2586), which is reached on the second day. Then line + DI falls below 20 and rises again, giving us a second input signal at 1.2636, and that leads us to find the next Fibonacci level 50% (1.2757), which is reached. The price continues its upward rally and reaches Fibonacci level of 61.8% and exceeded, and as we split our lots in different operations, we let them until they are removed by the trailing stop.

In the above chart shows the pair EUR/USD in timing of 4 hours. The first strategy gives us a sell signal at 1.3044 which leads us to look for the 50% Fibonacci level (1.2995), which is reached in the next two candles. Then the line -DI falls below the value of 20 and comes back up, giving us a second entry into the market at the price of 1.2970, which aims to achieve is in the 61.8% Fibonacci level (1.2936) is reached and exceeded. The price continued its bearish rally and the following operations are taken by the trailing stop.

Trailing Stop

It is always recommended to use a trailing stop order to protect their profits, for this, the line of the Envelopes more nearby to the price can work as our order of protection.

Purchase: Place our trailing stop on the values ​​that mark the top line (blue) of the Envelopes.

Sale: Place our trailing stop on the values ​​that mark the lower line (red) of the Envelopes.

Stop-Loss

The loss stops are advisable that not exceed 2% or 3% of the total of our account in a single operation, but can be used  the bands of the Envelopes to place our stop loss, the second band of preference. Also, in an operation sent to market, it will exit if ADX lines intersect or fall below its value of 20.

Successes

 

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Erick Gálvez

Administrador at ASD Forex
Webmaster of ASDForex.com and trader of forex market since 2008. I'm in charge of the publication and editing of news and analysis www.asdforex.com

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