These particular trading bands are based on exponential moving averages. This is basically an intraday forex strategy, which works well on the 15min time frame. Envelopes are used to indicate the trading range of a given market above and below an average price. Basically, moving average envelopes or trading bands are calculated by taking a moving average and calculating upper and lower trading bands as a fixed percentage above and below the moving average respectively.

These are considered to suggest extreme overbought or oversold conditions. The assumption is that, price should not deviate from the average of the underlying price element (high or low) by the percentage utilized. For that reason we established two EMA’s of 40 periods with a deviation of 0.30. That way envelopes place lines at fixed percentage points above and below a moving average line. The upper and lower limits specify entry and exit points for traders. We then use another exponential moving average with a setting of 15. The additional moving average is to help identify when the market is beginning to trend.

This strategy follows two simple rules:

Ø Do not enter a trade when the price is within the band. A trade is signaled only when the price moves outside the band. The general policy is Envelopesto go long when the price is above the band, and to go short when the price is below the band. In the figure above we can see the entry point pointed out by a circle.

Ø For confirmation; don’t trade when the 15 exponential moving average is flat. Only trade when the 15 exponential moving average starts rising or falling in the direction of the trade.

Ø A widen historical analysis has shown that the most secure and save way to trade in this strategy is fixing a target of 144 pips which can be change depending in how much you like risk.

This method keeps you out of the market when there is consolidation, which means more chances of getting whipsawed. The safe play was to wait for 15 exponential moving average to start to trend and for the price to be well above the bands. The strategy it has only been use in EUR/USD but it can work in any currency pair. The analysis was made during 10 days in the 15 mins time frame, in which the strategy worked 70% of the time.

If you want to contribute with the evaluation of this strategy on an expert advisor you can check our codes:

pagina1pagina2pagina3pagina4pagina5pagina6