Introduction

Some instruments have daily variations quite limited, and in some cases small or very small variations. The purpose of this article is to present a strategy for using the indicator Bollinger Bands and making some Martingle, taking advance in the limited variations of EURCHF.



The selected pair for the implementation of this strategy fluctuation between maximum and minimum was the EURCHF. The EUR/CHF currency cross (Euro/Swiss Franc) is the relation of the Euro against the Swiss Franc. This instrument is characterized by having very small variations in the day (which does not apply this strategy), or for similar variations in the length of the bars.

The volatility of the pair is also in favor of implementing a strategy of this kind, because the changes are not too large. Thus, is possible the application of Martingle technique. The technique of Martingale [1] is in the event that is applied when an order is faced a negative result. In this case the following order must have a larger amount to cover the previous loss and get profit. If the second order fails again we came back to make a new order and so on. One of the problems of this technique is that it is not possible make Martingale to infinity. Thus, it is necessary to take some risk and set a maximum level of successive entries in Martingale.

The indicator that gives us the trigger for entry to the market is the Bollinger Band [2]. The indicator Bollinger Bands, reflects the current changes in market volatility, confirms the trend, warns about the possibility of continuity or pause in the trend, consolidation period, and growth in volatility for the disruptions, and points to the minimum and maximum locations. The bands are formed by a simple moving average intermediate that forms the so-called mid Bollinger (Bollinger or Medium) by a top band (Bollinger High) and a lower (Bollinger Low). The default parameters of Bollinger Bands are: § Bollinger Average = Simple Moving Average 20 periods § Bollinger Superior = Simple Moving Average 20 periods + (2 * standard deviation of closing) § Bollinger Superior = Simple Moving Average 20 periods - (2 * standard deviation of closing)


The Strategy

After an analysis over time on the pair's EURCHF daily range I conclude that this is around 100 pips, and days often no more than 70 pips. Given these results I decided to develop a strategy that takes advantage of these movements of small/medium scale, followed by considerable corrections. To take this even feature, the strategy developed, only negotiate when the values of the maximum or minimum prices of the previous day are reached. The strategy is a very simple strategy, in addition to using the high and low of the previous day only uses the well-known indicator Bollinger Bands to open the first orders.

How it works:

  1. On each closure of the one hour candles, the basic idea is to check if the Close occurs above or below the maximum or minimum of the previous day relatively, then we must analyze whether the price closed also outside Bollinger Bands with default values (20, 2.2).
  2. If these two conditions are fulfilled, two distinct orders are open at the market price, a SELL order and a BUY order, since we are in an area of possible resistance or breakout. The TP of each order is equal to 20 pips. So at this time we have two market orders, without being consumed margin of our account.
  3. Once one of the orders reaches the take profit, the second phase of the strategy is initiated, to try close the order that was open only with a residual income. If it does not go to TP soon, a spaced Martingale of 35 pips began for over 3 levels, ie we will add 3 more orders at most to our inicial order that was open. So we will completely cover the range of pair, ie the 2nd order is placed when that open order is losing 35 pips, the 3rd when the order is loosing we 70 pips and the 4th when we reach 105 pips.
  4. From the moment we have more than one open order in the same direction, we do not to use a fixed take profit, and instead the strategy will calculate the residual value that was set and so this is reached all open orders will be closed, starting a new cycle.

IMAGE_1 - Example opening of the first 2 orders on each side


IMAGE_2 - Example closing with 2 orders in the same direction


IMAGE3_Example of Full Martingale levels order closing
As you can see in Image_1, the orders are open at the same time, one for each side, separated only by the SPREAD. In Image_2 as you can see, one of the orders was closing instant the very next candle and only need one more order to close that was open.
In image_3 we have the most unfavorable situation, that's when we need all the Martingale levels to close the open order with a residual profit.
The automated strategy is already in development, which translates into encouraging results as with the tests we conducted so far and removing the jerky movements with the removal of PEG and BREXIT, all positions are closed as intended during the test period.


Conclusion

In this article is presented a strategy for dealing with instruments that the variation ranges are well defined and are not very large. The use of Martingale allows us to win the lung needed to go following the evolution of the market always trying to follow the price the maximum and minimum we set. As future work we have the implementation of this strategy in JForex and see if there are other instruments where it can be applied.

References:

[1]http://www.investopedia.com/articles/forex/06/martingale.asp
[2] http://www.investopedia.com/articles/technical/102201.asp
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