Trend-chasing is always considered the best trading method for all types of traders from novices to professionals no matter they look to short or long movements. Today, in this article, we would like to introduce to you another effective trend-following system, composed of two popular indicators Envelopes and Relative Strength Index.
Like every normal trending system, this strategy contains one leading and one lagging indicators.
Moving Average Envelopes are highly proficient trend-seeking beacons. If you know about the Moving Average (MA), then the Envelopes are a more complex but also more comprehensive form compared to the MA. Envelopes consist of two parallel Moving Averages, one of which is shifted upward and another one is shifted downward. Because of that, this indicator highlights trending conditions more obviously and also generates more accurate trading opportunities, and is highly preferred by professional trending traders.
Relative Strength Index, so-called RSI, is a too famous leading guide for any market participants. Developed by legendary technician J. Welles Wilder, the RSI has proven itself to be an absolutely efficient detector of market momentum as well as the overbought/oversold areas as time progresses. In this system, it’s a powerful supporter for the Envelopes in order to carry out the mission of determining trends.
The detailed setting of this strategy is as follows:
• Envelopes are set of 14 days with a 0.1% deviation.
• RSI is also established with a 14-day setting.
Testing this strategy for 14 months, we have so far received a relatively good result: +1800 pips with the win-rate confirmed at 81.54%. According to the testing result, this strategy works best on the 15-minute chart, and could be used on any financial instruments.
How to use the strategy to trade Forex
Establishing this strategy may take only 30 seconds as all the required indicators are available in FinmaxFX’s MT4 trading platform. After installation, let’s watch for the following conditions to affirm occasions.
A bullish opportunity is identified when the requirements below are met:
• The Envelopes head upwards.
• The RSI remains above the 50 level.
Conversely, a sell signal is present when the following conditions are satisfied:
• The Envelopes head downwards.
• The RSI remains below the 50 level.
There are some important rules when trading with this strategy as follows:
• Only one position should be entered at a time.
• The candle of confirmation must be fully close before any trading decions are made.
• The stop-loss should be placed below the lower Envelope while trading bullish order, and above the upper one while taking bearish opportunities.
The take profit could be left open. When the RSI enters the overbought/oversold territory, traders can exit the order.
Pros and cons of the strategy
• Highly flexible and easy-to-use.
• Engender reliable signals by strict entering terms.
• Enables traders to benefit from long trends.
• Requires a high level of patience.
• Necessitates traders to monitor the trading platform.
The combination of the Envelopes & RSI creates a great trending system because these two indicators are highly proficient and co-operative, and its good testing result has proven that. If you prefer trend-trading strategies, we highly suggest trying this technical system. Just don’t forget to use risk controlling and psychology managing methods alongside because there is nothing called “100% win ratio” in the Forex trading world.