Breakdown Strategy using the Multicharts indicatorTuesday, 16 January 2018 09:58
This strategy is used in the Forex trading, referring to a countertrend type. This trading system is based on the Multicharts indicator, patterns, currency correlations and elements of trend techniques. To consider this method, it is worth reviewing the indicator first.
The Features of Multicharts
This tool allows monitoring the dynamics of other currencies on a chosen chart. For each additional pair, there is a small window, where moving averages with periods of 38 and 21 are displayed. As part of the strategy, it allows monitoring correlations between various assets. In settings, it is necessary to indicate which currencies you are interested in. At the same time, we recommend choosing pairs with the direct dependence of quotations (only two of them are going to need), and after them – pairs with the inverse correlation. When working with this strategy, these pairs will serve as confirmation of trading signals. It is sufficient to make sure that corresponding charts show the same (or reverse) movement, as the chosen correlated currency.
Breakdown trade by Breakdown Strategy
You will need the following tools:
- The trend line to identify the trend and search for good points of entering the market;
- The Fibonacci levels will help to refrain from false signals, received in the analysis of the previous tool.
Accordingly, this strategy will not require the installation of many indicators. Nevertheless, this set of tools is sufficient to determine when you should open a position and when it is better to close it.
Below we will consider in detail the conditions, which should be met when opening a Buy order.
- The asset price has formed a new maximum, and it is lower than the previous one. In two points, you should draw a direct line, which will serve as the resistance of the bearish trend.
- Now you should wait until the price breaks this line through from bottom to top. When you make sure that the level is broken, it means that resistance has become support. Keep in mind that the chart can revert and test the line once again. After that, when the directed upward movement begins, the strategy allows you to open a Buy order.
The Fibonacci grid allows you to check the signal for truth. You should build it from the starting point of the correlation area to the final one, from which the rollback started. Wait until the price curve crosses a mark of 100, and make sure that the candlestick closed after it.
The Stop Loss should be set at the minimum values of the correlation area, and the Take Profit can be at the levels of 161.8 or 261.8.
It is worth noting that the developers of the strategy recommend opening two positions at once with different levels of the targeted profit. It allows increasing chances of getting a tangible profit. Also, restraining orders are set at the same level, and move in the direction of the chart, allowing minimizing the losses.
To enter the market with a Sell order, you should focus on the support of the bullish trend, which will become the resistance after the breakdown. The sequence of activities is opposite to purchasing. The management of the profit and risks is carried out the same way as when using the strategy for purchasing.
It is worth noting that countertrend strategies are not recommended for Forex novices, and are traditionally considered riskier than trading in the direction of the trend.
We recommend testing this method on a demo account before starting real trading.