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Traffic Light Strategy – Basic Principles

Wednesday, 31 January 2018 10:56
Traffic Light Strategy – Basic Principles

Traffic Light Strategy is an indicator trading system in the Forex market, which assumes opening of orders when the trend begins. The method is used in conditions of a strong trend, on any account types. The most efficient will be to trade the EUR/USD pair, using the H1 and D1 timeframes.

Traffic Light Strategy uses enough technical tools to better anticipate the time of opening of profitable positions. At the same time, it is easy to work with, and the algorithm is understandable even for novices.

Working Principle of Traffic Light Strategy

Traffic Light Strategy is intraday. With the reduction of the period, many false signals are formed, resulting in a loss. The authors recommend using the D1 interval.

Traffic Light involves the installation:

  • CCI with a period of 14;
  • HMA Modified;
  • RSI Custom;
  • GoldMiner 2.

The CCI indicator resembles a moving average on the chart, formed in a range between the levels +100 and – 100. Using this tool, it is easy to determine overbought/oversold areas of the market. In the first case, the line is below the level of -100, and in the second – above +100.

The second trading robot, which is involved in Traffic Light Strategy, - HMA Modified also resembles the MA. More specifically, it is an upgraded version of the moving average. It is very easy to work with the indicator because once the HMA Modified line changes its color; it means that the trend has changed. This tool can be set up so that it produces sound alerts when the color changes.

The RSI Custom indicator is similar to the classic RSI, but it forms indications as a histogram.  The chart can be painted in three colors; each corresponds to a certain market phase. That is, columns can be red, yellow and green. If desired, the design can be changed.

An additional advantage of the robot is a possibility of setting the «valeur1» and «valeur2» levels. When these marks are reached, the application will notify the trader.

GoldMiner 2 also forms a histogram with red and blue columns. This program estimates the presence of the trend after it analyzes 300 previous bars. The indications are very accurate.

Rules of Entrance in Traffic Light Strategy

Open a Buy order, when:

  • A technical tool RSI Custom is yellow, or green has just appeared;
  • HMA Modified is blue;
  • GoldMiner 2 is blue;
  • The CCI line fluctuates between zero levels, or it crossed this mark from the bottom-up.

According to the rules of Traffic Light Strategy, Take Profit isn’t set when opening a position and Stop Loss is set at the level of the previous Low point.

Closing a deal is necessary when the CCI is in the zero zone, and the HMA Modified indicator at this point has changed its color.

Following Traffic Light Strategy, it is recommended to sell an asset:

  • RSI Custom is yellow or red has just appeared;
  • HMA Modified is red;
  • GoldMiner 2 is red;
  • The band of the CCI indicator is near the zero level or crossed the line from top to bottom.

It is important to consider overbought and oversold areas when working with Traffic Light Strategy. The first state means that the currency is about to be sold in large values, the second characteristic says about an upcoming boom for purchase.

When the CCI line goes beyond +100 or -100, and the HMA Modified gives a signal about trend’s change, you can close the position at the peak of the curve of the first indicator. It gives an opportunity to significantly increase your profit.

Before starting real trading, test Traffic Light Strategy on a demo account. It helps to better understand the indicator’s indications and respond to trading signals promptly.

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David Melton
David Melton

Financial expert. I work with investors and different companies. I write analytical reviews for newspapers and TV channels and I also manage researching projects