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Forex trading system "Range-bound 34EMA 5EMA"
Learn to forecast upcoming ranging market using 5 EMA and 34 EMA
This trading plan allows us to detect ranging markets as early as possible. It uses EMA 5 and EMA 34 to forecast upcoming sideway market. After identifying the closest swing high and low, two horizontal lines are drawn to identify the boundaries of the ranging market. When the price touches the horizontal line and bounce back in reverse, this shows a very high probability that the market is ranging.
Details
Categories: Technical, Range-Bound Trading
Timeframes: 1 Hour
Currency pairs: ANY
Trading sessions: ANY
Indicators used
- Moving Average
Period: 5
MA method: Exponential
Apply to: Close
- Moving Average
Period: 34
MA method: Exponential
Apply to: Close
Entry rules
On any time frame, we need two moving averages which are 34 EMA and 5 EMA. After both moving averages have been trading apart for a while in which the market was trending, start watching for the first candlestick to touch both moving averages, in which the body and shadows of the candle sticks are considered. Our next step is to look behind that candle stick and identify the closest swing high and low. Both those swings should be outside the reference candle body length, including shadows. Reference candle is the one I’ve circled in black. Once we've found both swings, draw horizontal lines thought them as shown on the screen shot below: That’s your anticipated range area ahead. As long as price stays inside that area, you can treat it as a range-bound move. We can now trade breakouts out of those ranges. We open a buy order when the price touches the bottom green and the candle stick shows bullish as shown below.
Trade management
The Take Profit and Stop Loss are described in the following exit rules.
Exit rules
We close the buy order when the blue line cross below the pink line and Stop Loss is set at the closest swing low as shown in the following picture.
Advantages
It allows us to forecast ranging or trending market, which is a very important in every strategy. This will give us a way to switch strategy according to the market conditions.
Disadvantages
As the market is ever changing, we would need to reset the range boundaries to the new highs and lows, which would take some time to identify.
Metatrader 4 chart template files
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