To date, hundreds of strategies have been invented that are more or less effective in certain market situations. There are no universal tactics, it all depends solely on the skill of the trader and partly luck. We continue to acquaint you on the pages of our blog with interesting trading tactics of a narrow specific focus. All of them have already been tested in practice, and today we will look at the Traffic Light strategy, so named for the red and green signals. Recall that in the comments after the review you can ask any question regarding the settings of the indicators and in general trading.
Traffic Light Indicator and Traffic Light Strategy
The Traffic Light strategy works on the basis of one combined indicator called the Traffic Light. On specified timeframes, it shows the price position relative to two EMAs (exponential moving averages). If the closing price of the candle is higher than both EMAs, the indicator draws a green dot, which means opening a position in the growth direction. If the price is lower than both EMAs, then a sale deal is opened.
The timeframe is M15, the currency pair is EUR / USD. The disadvantages of the strategy include relatively rare entry signals, but, as practice shows, false signals do not appear often.
Traffic Light Settings:
- periods: (5, 10, 20,40);
- timeframes: (10080, 1440, 240, 60).
A long position is opened as soon as the indicator on all 4 timeframes has drawn green dots. The opening of the transaction occurs on the next candle, a safety order is placed at a distance of 20-30 points. Position is closed if at least one of the following conditions is met:
- 30-40 points profit (you can transfer part of the position to the breakeven level);
- there is no green dot on at least one timeframe;
- there is a red dot on at least one timeframe.
The conditions for opening a short position are fundamentally opposite. The strategy can work on the M30 or H1 timeframe and on other currency pairs. But it requires an individual selection of the length of stop-loss and take-profit.
This strategy has another implementation option that is suitable for those who prefer to take risks for the sake of more frequent market entry. Traffic Light can be attributed to conservative indicators, because there is a variation of the “Traffic Light” strategy with 4 separate indicators:
- IA modified. One more variant of the simplified and optimized simple moving average. Helps smooth price fluctuations with weighted averages;
- RSI Custom. The usual relative strength index, which is displayed on the screen through a histogram;
- Goldminer. Arrow indicator showing trend reversal points.
In some versions, the CCI indicator is added to the strategy. All indicators need to be delivered to MT4 additionally. To open a long position, RSI Custom and Goldminer 2 must be green and NMA – blue. The timeframe remains the same – M15. The position is closed at the moment when one of the indicators changes color.
It is better for beginners to use Traffic Light, which is simpler in terms of clarity. But in terms of selecting the optimal parameters of the indicators, the second option is better. The “Traffic Light” strategy is so effective that several advisers have already been created on its basis. True, in terms of performance, manual trading remains a priority. And finally, we recall that you can earn even more thanks to savings with the return of the spread from FxCash. It is always more profitable together!