In previous articles in the section “Forex Strategy” I discussed the use of simple indicators, which are popular among beginners: stochastic, relative strength index (RSI), moving averages. Today I will give an example of a more professional use of indicators that together indicate good entry points in the market.
Three indicators of strategy for linear regression
The current strategy of the linear regression is based on three indicators, one of which you already know:
Linear Regression indicator, which clearly shows a price channel on a given trader timeframe. Visually shows the direction of price chart and on builds a channel on points that allows you to see the moment of position opening. Green – uptrend, red – falling down;
Xaser FV – index of market volatility. A zero value indicates flat horizontal price movement. Its growth suggests that the market begins to move, reducing movement in the market coming to an end;
RSI – relative strength index trend showing probabilistic reversal points of the price chart.
The values of indicators, which are suitable for the strategy of linear regression:
- Linear Regression:
- TimeFrame = Current Time Frame (4 hours, chosen by us);
- LrsPeriod = 40 (the period for calculating the indicator values);
- Price = 0 (after the closure);
- MultiColor = True (different colors of the indicator).
- Xaser FV:
- Xaser Period = 14 (the indicator calculation period);
- Flat_Period = 0 (the calculation period of a flat);
- the other parameters by
- Period 14;
- Apply to Close;
- Levels 30, 50, 70.
Trade terms of strategy of classical linear regression: use the MetaTrader 4 trading terminal where you can always easy and fast to download any indicator or to write your own. Currency pair – classic: EUR / USD, the timeframe is 4 hours.
Conditions for opening long positions. The entry point is the next candle to which the following conditions are met:
- Linear Regression changed color from red to green;
- Xaser FV last 2-3 candles is at a zero value (therefore, the trend is growing), as well as before this indicator was at level 0 at least 3 bars;
- RSI is above 50 level.
Stop-loss insured position at the level of 30-60 points. We leave from the position of the already known way: we get a profit of 30 points, close 50% position, the second half of the position insure a trailing stop (a floating order of 50 points.
Opening a short position is similar with mirror image Linear Regression (change color from green to red) and RSI (below 50 level). Trade is not conducted at the end of the week, with value Xaser FV to “0” and at the time of publication of news.
Strategy of linear regression is easy to implement and it allows you to enter the market a large number of times, i.e. the strategy can be adopted as the main one. The advantage of this arrangement of signals is that they allow you to weed out false signals. The strongest signal is the time when the Linear Regression will change color and at the same time RSI crosses the 50 level upwards (buy signal) or downwards (sell signal).