Trend Trading Strategies in MT4
Hi, this is Shaun Overton with ForexNews.com and OneStepRemoved.com. In this 3 minute video, I’m going to introduce you to a range trading strategy. You can download the file as an expert advisor for your MetaTrader 4 platform. If you don’t already have an MT4 demo account, you can get a free one from OANDA by clicking the link under this video.
Markets can only do one of three things: go up, go down or move sideways. Range trading is the term that traders use when the market doesn’t move in any one direction.
Some currency pairs are far more prone to range trading than others, especially those currencies of countries with strong import / export relationships. The euro and pound represent two trading blocs that are neighbors: the UK and the EU. Neighbors tend to do a lot of trading with one another, which generally promotes stability in their exchange rates.
When you look at how real economic relationships show up in the exchange rates, you generally see that the exchange rate hasn’t moved very much. The EURGBP is fairly famous for being one of the least exciting crosses to trade.
Here’s a typical example taken from the current market. It’s a one hour EURGBP chart.
The price at .8241. Over the past few days, it’s risen as high as .8343 and down to .8157. And after running up and down, the price returned almost exactly to where it started.
The UK isn’t going to pick up and move next to Japan next year. It’s right next to the euro zone, so there’s an inherent economic incentive for the exchange rates to behave similarly in the future. When exchange rates to far in one direction, the country with the weaker currency tends to export more and import less. Which in turn leads to its currency becoming stronger.
That doesn’t mean that the exchange rates cannot be volatile. The EURCHF experienced something of a rocket ride several years ago before the Swiss National Bank intervened in its currency. I say this as a warning that just because a currency pair has been stable in the past and “should” be stable in the future doesn’t mean that’s what’s actually going to happen.
The first step to using a range trading strategy is overwhelmingly the selection of the currency pair. The strategy is a secondary concern. The most well-known range trading pairs are EURGBP and AUDNZD. GBPJPY would be the last place you’d look to implement a range trading strategy. It’s famous for its tendency to trend quickly.
Bollinger bands are a well known indicator that is used to detect when the price has moved too far from its moving average. The bands use an idea from statistics known as a standard deviation. If the price is more than 2 standard deviations from the average, Bollinger bands say that the price is likely to return inside of the bands.
The idea of a range is that the price isn’t expected to travel very far. Bollinger bands match up with that idea nicely. If the price moves “far”, that means it has traveled outside of the bands.
A simple expert advisor would say that if the price moves outside of the Bollinger band, then the EA expects the price to return inside the bands.
That’s exactly what ForexNews.com and OneStepRemoved.com have prepared for you as a free gift. If you would like to download this expert advisor, then we have included a link to it below this video.
The rules for entering a trade are:
If the price closed below the lower Bollinger band on the last closed bar, then enter long at market
Whenever the closing price of a bar is above the lower Bollinger band, then exit at market.
Short rules are the opposite. If the price closed above the upper Bollinger band on the last closed bar then enter short at market. Close the trade whenever a bar closes below the upper Bollinger band.
If you don’t already have a free MetaTrader 4 demo account to run this EA, you can get one with OANDA by clicking the link below this video.