This trading strategy is based on the combined indicator of KS, which builds a dynamic channel of price movement. It is based on two classic instruments:
- EMA – exponential MA.
- ATR is the average true range.
The KS indicator builds a dynamic channel by adding and subtracting ATR values from the EMA. The correction factor by which the ATR data is multiplied is indicated in the settings and is selected individually for each currency pair. The principle of the strategy is that in a calm market, the price moves inside the channel, taking its average values in it. And in the case of a deviation from the average values (i.e., movement to the borders), it seeks to return back. The optimal pair for the indicator settings is EUR / USD, the timeframe is M15. It is not recommended to lower the timeframe, it can be raised for other pairs, if this helps to increase the number of accurate signals.
Settings of the COP indicator: Period EMA = 20, Period ATR = 20, Factor = 1.5 (coefficient by which the ATR value is multiplied). You can download its template for MT4.
Conditions for opening a long position:
- One or more candles went beyond the lower boundary of the channel. Moreover, the number of candles should not exceed 7 pieces, since otherwise, it could be a breakdown of the channel and the emergence of a new strong trend. Candles should be located completely under the channel line.
- The distance between the lower dynamic line and the maximum of the candle under it should be more than 5 points.
- After observing all these conditions, a growing candle appears on the chart, which closes above the dynamic line. In other words, there was a price reversal, which returns to the middle of the channel. The larger the body, the better.
We open the deal on the next candle. We put a safety order with a length of 15-30 points. I recommend closing the transaction after the price has reached the middle of the channel. You can close only 50% of the position, the rest after moving the stop to breakeven level is insured with trailing.
Conditions for opening a short position:
- One or more candles went beyond the upper boundary of the channel. Moreover, the number of candles should not exceed 7 pieces. Candles should be located above the channel line completely.
- The distance between the upper dynamic line and the minimum of the candle under it should be more than 5 points.
- After observing all these conditions, a falling candle appears on the chart, which closes below the dynamic line. In other words, there was a price reversal, which returns to the middle of the channel. The larger the body, the better.
The conditions for opening and closing a position are similar. An additional confirmation signal may be the formation of a candle reversal pattern outside the channel.
The indicator shows the best results at the time of the classic market movement, that is, in a calm market. At the time of the news release, trading is not carried out, since at the time of increased volatility many false signals appear. It is also better to exclude the Asian session and flat. If the channel is visually narrow compared to previous periods, it also makes sense to refrain from entering the market. We don’t open a trade if the signal candle turned out to be too long, that is, has reached or almost reached the middle of the channel.