› Trend Line & Envelopes Trading Strategy - How It Works

Trend Line & Envelopes Trading Strategy - How It Works

Today, we will introduce you to the “Trendline & Envelopes” a great strategy for the EUR/USD currency pair. In this trend line trading strategy, two input methods are given and in principle, they both work, but it is better to look at them separately and understand what the risks in each entry are. In this article, you will find the guide to apply this strategy on Forex market and witness the efficiency.

Overview of the trendline trading strategy:


The “Trendline & Envelopes” Strategy can be applied on a wide range of currencies pair arguably according to the author. However, only with the EUR/USD that the strategy reveals averagely of 3 entry points each month with a considerable return.

The following indicators are required for the chart:
  1. Indicator Envelopes with a period of 14
  2. Indicator Stochastic with parameters 5,3,3
  3. Time Timeframe being set at (H1)


What is a Trend Line?


A trendline is a line drawn over pivot highs or under pivot lows to show the prevailing direction of price. Trendlines are a visual representation of support and resistance in any time frame. They show direction and speed of price, and also describe patterns during periods of price contraction.


Conditions for purchases in the “Trendline & Envelopes” Strategy:


The Envelopes indicator decreases and shows its maximum values (the selected extremes). If after the next extreme the indicator rewrote its last minimum value, then it can be used to build a trend line. As soon as the red line (lower) is above the trend line, we can form a zone where entry point might stays. The price ranges from the red line to the blue line, and there is a zone when the price is rolled back, we will look for a buy signal.

The first method of entry: find a candle with a small body and long tail downwards in the price range. At the opening of the next candle is a deal to buy.
2nd method of entry: the price is in the zone defined by us, and the Stochastic indicator below the level 50 turns up (the signal line stays under the main one).
  1. At the opening of the next candle, open a purchase order.
  2. As soon as the lower limit of the Envelopes indicator comes up from the price range defined by us, the transaction is transferred to a breakeven.


If you like this strategy, you might also be interested in this Stochastic RSI Trading System

Trend Line & Envelopes Trading Strategy - How It Works


Conditions for sales in the “Trendline & Envelopes” Strategy:


The conversed features of trendline from purchase conditions applied in this case. The price range from the red line to the blue line, and there is a zone when the price is rolled back, to which we will look for a buy signal.

The first method of entry: find a candle with a small body and with a significant tail from below with the price remains in the price range. The opening of the next candle is a sale transaction.

2nd method of entry: in the determined price range, the Stochastic indicator is above 50, it turns down (the signal line is above the main one).
  1. At the opening of the next candle, a sale transaction is opened.
  2. As soon as the upper limit of the Envelopes indicator goes down from the price range defined by us, the transaction is transferred to a breakeven.


Trend Line & Envelopes Trading Strategy - How It Works


Important rules when applying this strategy:
  • Opening one position at a time is a high recommendation.
  • Don’t enter the market until the candle of confirmation is totally closed.
  • The maximum risk for each transaction shouldn’t be more than 5% of your total balance.
  • The order should be set expired in a maximum of eight hours.
  • If both signals coincide, then this only strengthens the determined entry point.


Pros and cons of the strategy



Pros


  • Provides a detailed guide to trade.
  • Easy to track and install.


Cons


  • Takes time to track potential points for ordering.


Conclusion



The “Trendline & Envelopes” is an effective technical strategy with a considerable return and simplicity. Given the H1 time interval, this strategy is incredibly suitable for intraday traders. In addition to a great strategy, to remember exactly the signal movements and adhere strictly to the mentioned rules are compulsory for a success in this market.


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