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Multi-Conditional Trading System For Forex 1

The Forex trading system that we are going to present below is based on the analysis of multiple time frames before the opening of the trade. After detecting a valid signal in the lower time frame (M5), the upper time frame (M30) is analyzed to see if it presents matching signals and if the response is alternative, the signals in the upper time frame (H1) are checked ). If the signals from all 3 time frames point in the same direction, the trade is opened.

In this way, the trader makes sure that he is trading in the same direction as the major intraday trends and does not open a position against larger trends, a very common failure of trading systems that use only one time frame. A position is opened only if the trend of the 5-minute time frame coincides with the trend of the 30-minute frame and the 1-hour market.

This trading system is purely mechanical since it is based on the signals of well-known technical indicators, 3 exponential moving averages and Bollinger bands, applied to the 3 time frames that the methodology uses.

Its rules are relatively simple and easy to follow, although they require more care, since the trader has to review 3 price charts instead of 1.

As always, it is recommended to test this system on a demo account before using it for real money trading.

System configuration and indicators

  • Recommended markets: This trading system was initially designed for the Forex market, but can be applied in other markets, including precious metals and indices, for example.
  • Recommended time frames : This methodology is used simultaneously in 3 time frames, 5 minutes, 30 minutes and 1 hour. These are the recommended time frames for this system, but other combinations can be tried.
  • Recommended market sessions: The system can be used in any market period, but the differences in volatility and strength of movements between different market sessions must be taken into account.
  • System indicators – The technical indicators used by this system are the following:
    • 1 price chart with M5 time frame.
    • 1 price chart with the M30 time frame.
    • 1 price chart with H1 time frame.
    • Each chart should have the following indicators:
      • 1 exponential moving average (EMA) of 14 periods.
      • 1 exponential moving average (EMA) of 21 periods.
      • 1 exponential moving average (EMA) of 50 periods.
      • Bollinger Bands with standard settings (20, 2).

Rules of the Multiconditional trading system

As we already indicated, this trading system uses a series of simple rules that must be fulfilled simultaneously in 3 time frames, so that the buy or sell signal is valid.

These rules are described below:

Opening of purchase operations

We open a buy position when the following conditions are met:

5 minute chart:

  • The 14 EMA must be above the 21 EMA.
  • Both the 14 EMA and the 21 EMA must be above the 50 EMA.
  • The 50 EMA must be within the Bollinger Bands.
  • If these three conditions are met, we review the 30-minute chart.

30 minute chart:

  • The current price bar should be bullish and should preferably be at or near the 14 EMA or 21 EMA.
  • The 14 EMA must be above the 21 EMA.
  • Both the 14 EMA and the 21 EMA must be above the 50 EMA.
  • The 50 EMA must be within the Bollinger Bands.
  • If these conditions are met we review the 1 hour chart.

1 hour chart:

  • The current price bar should be bullish and should preferably be at or near the 14 EMA or 21 EMA.
  • The 14 EMA must be above the 21 EMA.
  • Both the 14 EMA and the 21 EMA must be above the 50 EMA.
  • The 50 EMA must be within the Bollinger Bands.
  • If these conditions are met, we open the buy position on the 5-minute chart.

-Open position: Buy position is opened on the 5-minute chart if the above conditions are met in all 3 time frames. If at least one of the conditions is broken, the signal is ignored.

-Stop loss: The stop loss is placed below the last swing low before the signal candle.

-Closure of position: The position is closed with profit once the price reaches a certain level ( fixed profit target ) that is at least equal to the stop loss or when any of the previous conditions is breached.

Opening of sales operations

We open a sell position when the following conditions are met:

5 minute chart:

  • The 14 EMA should be below the 21 EMA.
  • Both the 14 EMA and 21 EMA must be below the 50 EMA.
  • The 50 EMA must be within the Bollinger Bands.
  • If these three conditions are met, we review the 30-minute chart.

30 minute chart:

  • The current price bar should be bearish and should preferably be at or near the 14 EMA or 21 EMA.
  • The 14 EMA should be below the 21 EMA.
  • Both the 14 EMA and 21 EMA must be below the 50 EMA.
  • The 50 EMA must be within the Bollinger Bands.
  • If these conditions are met we review the 1 hour chart.

1 hour chart:

  • The current price bar should be bearish and should preferably be at or near the 14 EMA or 21 EMA.
  • The 14 EMA should be below the 21 EMA.
  • Both the 14 EMA and 21 EMA must be below the 50 EMA.
  • The 50 EMA must be within the Bollinger Bands.
  • If these conditions are met, we open the buy position on the 5-minute chart.

-Opening of the position: The sell position is opened on the 5-minute chart if the above conditions are met in the 3 time frames. If at least one of the conditions is broken, the signal is ignored.

-Stop loss: The stop loss is placed above the last high of the swing before the signal candle.

-Closure of position: The position is closed with profit once the price reaches a certain level ( fixed profit target ) that is at least equal to the stop loss or when any of the previous conditions is breached.

System example

Here is an example of a sell signal generated with this system:

First we have a 5 minute chart of the AUD / JPY currency pair where we initially have a sell signal. The price trend is bearish, the 14 EMA is below the 21 EMA and both exponential moving averages are below the 50 EMA as the rules indicate. Also, the 50 EMA is within the Bollinger bands. Therefore, the M30 chart is revised.

On the M30 chart, the system rules are also met and the current price bar is bearish, as we see in the previous image. Since the rules of the system are also met in this time frame, we move on to the following graph.

In graph H1 we can also see that the conditions dictated by the system rules are fulfilled. The 14 EMA is below the 21 EMA and both moving averages are below the 50 EMA, while it is within the range of the Bollinger bands.

Since the system conditions are met in all three time frames, the sell position is opened on the 5-minute chart of AUD / JPY.

 

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