Description of Price Action Moving Averages Strategy

Forums Strategies and Expert Advisors Price Action Moving Averages EA Description of Price Action Moving Averages Strategy

  • This topic is empty.
Viewing 8 posts - 1 through 8 (of 8 total)
  • Author
    Posts
  • #4491
    DominikDominik
    Administrator

    Hi everyone!

    Today I would like to share with you my another strategy, based on 2, 3 or 4 Moving Averages.

    Strategy is very simple, so it’s very good for beginners and for manual trading aswell ;) Its main principle is based on the balance of the market, which must be preserved, same as in other areas in the world and in life 💡 To find the long-term or short-term balance on forex market we can use many different techniques, but that which I’ll show you is based on 2 Moving Averages working as an axis of balance or even more often as a “wall” from which price bounces off like a ball. For an example, I will use first Moving Average with period 20 (green one) and second Moving Average with period 40 (red one). Both are Simple Moving Averages. Let’s see an example:

    As you can see, I marked with vertical lines situations when price touches lower Moving Average (green one, faster, with period = 20) from down and comes into the zone between two moving averages. It may be a good system for counter-trend trading, right?

    So let’s set some rules for counter-trend trading. We open:

    1) BUY orders if and only if price is below faster MA (20) and faster MA (20) is below slower MA (40),
    2) SELL orders if and only if price is above faster MA (20) and faster MA (20) is above slower MA (40),
    3) ALL orders if distance between price and faster MA (20) is above-average,
    4) ALL orders if distance between MA (20) and MA (40) is above-averag (and best when it expands),
    5) ALL orders if the intersection of Moving Averages was at least 4-6 candles ago – not earlier,
    6) BUY orders if price sets new HIGH – higher than in last swing,
    7) SELL orders if price sets new LOW – lower than in last swing:

    For this strategy, there are several ways to set Take Profit.
    1) First way is to put TP in value of last swing of the same type as the order (we BUY on swing LOW – previous swing LOW is TP – see on screenshot above).
    2) Second way is to dynamically move TP with faster MA (20). It requires more patience and attention in manual trading, but it’s possible.
    We can use both methods together. TP will close order depending what will happen first: 1) or 2). It’s much safer.
    3) Third way is to add to the chart another, third, Moving Average, even faster than MA (20), only for TP. This is used in my automatic trading system which I will publish at the end of this description. Let’s see this on example with third Simple Moving Average (orange one) added only for TP with period 12:

    In the case of the Stop Loss it’s very simple. For BUY orders we set STOP LOSS few points below lowest value from current swing, for SELL orders – few points above highest value.

    Now let’s get to the most important issue – opening orders. To find a good time to enter the market we can use different methods. One of them is method from my another strategy called “Price Action Engulfing Candles Strategy” (descripted here: https://theinvestbay.com/viewtopic.php?f=3&t=2). Please read about it in first post – I mean description of this pattern:

    We can create many theories and make many modifications for this pattern, but it’s impossible to describe it all, because the situation always looks a little different. The only way to learn this is to test it in practice. For testing purposes, I suggest you to try to use also 3 candles instead of 2 as engulfing candles in direction of new trend. Also, we can use so many engulfing candles as needed to engulf e.g. previous 1, 2 or 3 candles in opposite direction (earlier main trend). The ability to decide what is important and what to include into the pattern comes with experience in the use of the pattern, so I don’t explain and complicate anymore. If there are any questions then I will gladly answer.

    The second method to recognize the right moment to enter the market is to SELL in short-term Overbought Zone or BUY in short-term Oversold Zone, according to the extreme values of Relative Strength Index with period less than default. My dashboard “RSI Extremes Overbought and Oversold Dashboard” is very useful here, because it monitors all currency pairs in conditions of extreme values for us (you can read more here on the official MQL site: https://www.mql5.com/en/market/product/13223 or also on this forum: https://theinvestbay.com/viewtopic.php?f=6&t=15).

    OK. Let’s see an example with RSI (7), levels 25 and 75:

    The third method, which is worth mentioning is based on volume value instead of price value (RSI). My indicator (description on the official MQL site here: https://www.mql5.com/en/market/product/15357) and dashboard (description on the official MQL site here: https://www.mql5.com/en/market/product/13248 or on this forum here: https://theinvestbay.com/viewtopic.php?f=9&t=17) “Volume Volatility” show us when the relative values of volume are very high or very low (all here must be relative of course). This method will be described in a few days in topic “Volume Volatility Strategy” here: https://theinvestbay.com/viewtopic.php?f=14&t=18.

    I suggest you to try also different Moving Averages for different currency pairs and timeframes. For example, you can change period of first Moving Average from 20 to 30 and period of second Moving Average from 40 to 50. You can also add another Moving Average with period equal to value of doubled slower Moving Average (it would be 80 or 100) for a confirmation of trend stability – all three MAs must be parallel to each other and the price (in ideal conditions) shouldn’t touch the slowest MA (80 or 100) during retracements in the whole trend.

    On next example (for this currency pair, timeframe and all trend conditions), to perfectly manage an order we should use fastest TP-Moving Average (orange one) as dynamic Take Profit (according to theory), but we don’t have to really put Take Profit for this order only wait for crossing this MA by the price and then put “dynamic” Stop Loss exactly on this Moving Average (put and move higher with MA). Then we’re waiting for next crossing, this time we have second Moving Average (green one) and we make exactly the same with moving Stop Loss with this MA. Next Moving Average (red one) is last on this example that we can use for a “dynamic” Stop Loss. At the time when the price stops moving in current direction (UP on example) and returns – first met Moving Average acts like a Stop Loss (orange MA on example). Let’s see this situation on the last screenshot with all 4 Moving Averages:

    That’s all for now. All comments and ideas are welcome. Next part will be with Expert Advisor file for MetaTrader 4, settings with optimized parameters and of course rest of the description. I will try to show you also how to trade with this strategy with the main trend (not counter-trend). Please be patient :)

    Good luck in trading! 8-)

    p.s. At the end I’ll show you one result of optimization this strategy for EURUSD on timeframe M5:

    #4691
    DominikDominik
    Administrator

    I want to add to the previous post that there are more situations in which it’s better to close profitable transactions with even small profit and open another than wait if it will go further…? or rather return…? …and so on. If you have ever opened just one order, you know exactly what I mean and how is it when you want to enchant chart to go in the direction desired by you… but it doesn’t work :) One great example is on screenshot below, which is taken from history of my trading on live account (few days ago). As you can see, at the end of transaction is my 2 Candles Engulfing Pattern in opposite direction than direction of my order and it is also signal to go out from this trade:

    As another reasons to close the transaction (or put SL very tight) I can suggest you, among others, “strange” behaviour of price (leading to reversal or retracement) in values of:

    – round numbers,
    – fibonacci retracements,
    – fibonacci extensions,
    – support and resistance lines/levels,
    – supply and demand zones,
    – very small candles (which often represent a weakening of current trend)

    … and, of course, during publishing news with high, medium and even low impact on traded currency pair.

    #4692
    Avatarnoronhatrader1978
    Spectator

    good job, when we going to have an EA on this strategy? i think it will be easy for us to trade :)

    #4693
    DominikDominik
    Administrator

    Hi!

    I’m working on it parallel to “Volume Volatility EA” :) but both will have to wait a little longer, because I’m focusing right now on the optimization process of parameters for another currency pairs for new version of Price Action EA, which brings very good results. I will try to publish some description and files within next few days. So stay tuned :)

    Regards!

    #4694
    DominikDominik
    Administrator

    Hi!

    I would like to proudly present first official version of Price Action Moving Averages EA: 1.0 :)

    Most parameters of this EA is the same as in the Price Action Engulfing Candles EA, published on this forum some time ago, so I suggest to read about them first (if you don’t know them yet) in this topic:
    https://theinvestbay.com/viewtopic.php?f=3&t=2.

    This is the list of parameters or Price Action Moving Averages EA:

    I will describe only these parameters that are different from those in Price Action Engulfing Candles EA.

    One of the first parameters is “Min_Candles_After_Next_Trade” which defines minimal amount of candles that must pass after opening order to open another order. This parameter protects deepening another losses and limit their number to only one in a row.

    In block “Opening orders” we can see 5 parameters:

      Min_Distance_to_TP – minimal value to Take Profit in points at which orders will be opened,
      MA_Period_for_Min_Distance – period of Moving Average for parameter below,
      Min_Distance_to_MA – minimal value to Moving Average from above in points at which orders will be opened,
      MA1 – period of first Moving Average – faster,
      MA2 – period of second Moving Average – slower.

    The condition that must be met to open orders is parallel arrangement of price, MA1 and MA2.
    For BUY orders price must be below faster MA1 and faster MA1 must be below slower MA2 (price < MA1 < MA2).
    For SELL orders: price > MA1 > MA2.

    Next block of parameters is called “Take Profit”. We have here 3 parameters:

      TP_Level – level of Take Profit specified in percent value (more accurate description below),
      Candles_To_Take_To_TP – number of candles to the left (in the past) to look for extreme to put Take Profit,
      TP_Distance_from_Extreme – distance in points from extreme value from above parameter.

    Next block of parameters is called “Stop Loss”. We have here 4 parameters:

      Trailing_SL_in_MA – we can set True if we want to put automatic SL after crossing specified Moving Average by price,
      MA_Period_for_SL – period of Moving Average for use of parameter above,
      Candles_To_Take_To_SL – number of candles to the left (in the past) to look for extreme to put Stop Loss,
      SL_Distance_from_Extreme – distance in points from extreme value from above parameter.

    First position of Take Profit and Stop Loss is calculated from 2 last parameters of 2 blocks from above (“Candles_To_Take_To_TP”, “TP_Distance_from_Extreme”, “Candles_To_Take_To_SL” and “SL_Distance_from_Extreme”). Parameter “TP_Level” determines distance in percents between SL and TP to put new TP. For example if we set TP_Level to 50 – Take Profit will be in the middle between TP and SL. If we set TP_Level to 61.8 we will have TP in Fibonacci retracement equal to 61.8% (where 0% is SL and 100% is TP). By setting the TP_Level to 100, TP will be in the first calculated extreme moved by specified number of point from parameter “TP_Distance_from_Extreme”.

    Another block, which has new parameter, is “Pattern”. First parameter “Pattern_Version” can be set to 1, 2, 3 or 4 and these numbers determine the slightly modified another versions of Engulfing Pattern, which is used to opening orders. Another parameter “Close_Order_When_Opposite_Engulfing” determines if opened order should be closed if will occur Engulfing Pattern in opposite direction than direction of opened order.

    All other parameters are understandable and I think that I don’t have to explain them.

    Parameters for this EA for another currency pairs will be published consecutively in the relevant topics in this subforum.

    As an example I will show results after optimization of EURUSD on H4 timeframe (2012-now):

    And graph with profit:

    Setting giving above results you can find here: https://theinvestbay.com/viewtopic.php?f=13&t=23

    This version of EA will work to the end of September 2016.

    #4695
    DominikDominik
    Administrator

    Hi!

    Current version of this published EA is based on counter-trend trading, but it is also possible to use similar algorithm and rules to the system which will trade with the main trend. I made 2 short videos (only 1 minute/each) to show you what I’m talking about. On the first video you will see current version of system (counter-trend):

    https://youtu.be/RadWeGwQ9YY

    On the second video is example of trading with the trend:

    https://youtu.be/HSYj4gP92cU

    On both examples has been applied the concept of Stop Loss trailing on Moving Average.

    First video was made before I code to this EA parameter “Close_Order_When_Opposite_Engulfing”, so now it would take profits sooner than waiting for the SL on MA as you see.

    Regards!

    #4696
    DominikDominik
    Administrator

    Hi!

    In attachment you can find new version of Price Action Moving Averages EA: 1.1

    This version has some new parameters and some changes in algorithm.

    For now, only parameters for USDJPY H4 are optimized for this version and you can find them here:
    http://theinvestbay.com/viewtopic.php?f=13&t=24

    Regards!

    #4697
    DominikDominik
    Administrator

    This project has been discontinued from further development.
    I’m attaching last version of this product with no expiry limit, but size of lot is hardcoded to 0.01.
    If you have questions, please contact me.
    Regards!

Viewing 8 posts - 1 through 8 (of 8 total)
  • The topic ‘Description of Price Action Moving Averages Strategy’ is closed to new replies.