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Trading strategy in the horizontal channel

Trading strategy in the horizontal channel

Horizontal synthetic basket - how does it work?

Horizontal baskets are created due to the features of movement and interaction of assets that are located inside the basket.

Why is there no trend in such a basket? Let’s describe the answer to this question in more detail on the example of one of the horizontal baskets consisting of 6 currency pairs: EURUSD, USDCHF, AUDCAD, AUDCHF, CADCHF, NZDCAD.

So, to begin with, we have included the EURUSD and USDCHF currency pairs inside this basket, the price chart of which has an almost mirror image.

That is, when the EURUSD quotes are rising, at this time the USDCHF quotes are in the fall stage:

If we include to the basket EURUSD in the SELL direction and USDCHF in the SELL direction, then it turns out that the equity lines of these two instruments will move in the same direction. The total equity line of these currency pairs will look like this:

As you can see, we got a horizontal trend of movement. However, we will not stop there and add two more currency pairs to our basket: AUDCAD and AUDCHF. The charts of these currency pairs have a positive correlation and the direction of their movement is similar to each other.

The movement of the two graphs are similar to each other:

If you include these pairs in the synthetic basket in the following way: AUDCAD sell and AUDCHF buy, then their total equity line will look like this:

Also, we add two pairs to the basket: CADCHF and NZDCAD which are not related to each other. Their task is to balance the equity charts that we showed above. CADCHF should counterbalance for USDCHF. In turn, NZDCAD should counterbalance for AUDCAD.
After that, we add all these currency pairs that are listed above in one portfolio and get a basket of equity that moves constantly horizontally because all these pairs are in a constant equal-weighted state.

So, now we add all the equity charts of the listed currency pairs together and get a basket of assets, the equity of which is in a constant and almost perfect horizontal flat:

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So, with the help of the analytical complex Synthetic Basket Trader, you can create baskets of assets, the equity chart of which moves in a constant horizontal flat trend.
This is a real paradise for trading in the channel! You are trading simultaneously in two directions: BUY and SELL. Almost every transaction brings you profit. If you made a loss in one direction of trading, then at this time the BUY direction brought you a profit of 2 times more!

OK, let’s get down to business! We will describe in detail how to trade in the channel and make a profit!

Trading strategy 1 - trade from the outer borders of the channel towards the center of the channel

So, we wait for the equity line to reach the lower or upper edge of the channel and trade in the direction of the center of the channel. In order to get a signal that the equity line crosses the channel boundary, you can activate the alert function in the manual settings of the indicator.

  • If the equity line has reached the lower border of the channel-buy a basket
  • If the equity line has reached the upper border of the channel – sell the basket

We fix the result for the BUY basket and for the SELL basket at the level of the central line of the channel. To utomatically fix the result, use the “Fix level 0” buttons on the Equity Trader panel. Click on the button – it will change its color. This means that the auto-commit function is in active mode. As soon as the equity line touches the central level of the channel, the Equity Trader utility will automatically close the basket of orders. 

All templates have multiple channel levels set. These are the target levels for purchases and sales. The equity line can turn around at the level closest to the center line, or it can reach the most extreme level.

Your task is simple-buy and sell baskets at these levels and fix the result at the level of ” 0″:

Useful tip:

Set the number of the level where you want to receive the intersection alert. After the equity line touches this level, the indicator will beep, a pop-up window will appear with a notification of the intersection, and you will also receive a PUSH and email notification. 

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Trading Strategy 2-momentum reversal in the channel

The Synthetic Basket Trader software package also uses the author’s modified Momentum indicator. This indicator works on the principle of the traditional Momentum indicator and measures the strength of the momentum movement of an entire basket of assets.

With the help of the Momentum Equity indicator, we can accurately determine the moment of reversal of the basket equity chart inside the channel.

Trading Rules:

For a BUY deals:

The line of the Momentum Equity indicator has touched the overbought level. At this time, the Synthetic Basket Trader line located in the lower half of the price channel.

Set the virtual Take Profit at the level that is located at the top of the equity channel.
Set the virtual Stop Loss at the lowest limit of the channel.

For SELL deals (the rules apply in the opposite sense):

The Momentum Equity indicator line touched the oversold level. At this time, the equity line is located at the top of the price channel.

Set the virtual Take Profit at the level that is located at the bottom of the equity channel.
Set a virtual Stop Loss at the extreme upper limit of the channel.

Ready-made baskets

We have prepared for you several ready-made baskets with horizontal dynamics of the equity chart movement. All you need to use our ready – made solution is to upload the automatic configuration files to the Synthetic Basket Trader indicator and in the Equity Trader utility.

You will receive the files for automatic configuration after purchasing this software package.

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How to use automatic settings

After you download the archive with automatic settings, unpack the contents of the archive to the root directory of the MT5 platform.

Open the “File” tab and select “Open Data Folder”:

Unzip the archive to the Presets folder:

Open the manual settings of the Synthetic Basket Trader indicator and click the “Load” button. In the “Presets” window that opens, select the set file you need and click on the “Open” button:

After loading the automatic basket setup, the indicator will calculate the portfolio change based on historical data. In a separate window, the basket equity line will appear, where you can receive signals for this trading strategy.
In the same way, load the same settings for the utility’s Equity Trader. Thus, the indicator and the utility will be configured to trade on the same basket of assets.

Install the Equity Trader utility on the quote chart and download the set-file that you used to configure the Synthetic Basket Trader indicator.

In simple words, the indicator and the utility should always use the same settings file!

Thus, you should have a Synthetic Basket Trader indicator on the quote chart, with which you can analyze the market and an Equity Trader utility with which you will trade baskets of orders.

IMPORTANT! 

The Synthetic Basket Trader indicator and the Equity Trader utility should always use the same settings!! Follow this rule carefully! Use the same set file to configure the indicator and the utility!

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How to create a Basket for channel trading yourself?

To create a synthetic basket for trading in the channel, enter the names of the assets from which you want to create a basket in the settings of the Synthetic Basket Trader indicator. Also, specify the direction of their virtual trading and the size of the virtual trading lot.

Pay attention to the “Unique Settings Key” variable – its value must be the same in the utility settings and in the indicator settings. This way, the utility will be able to synchronize with the indicator, and you will be able to properly manage the order buckets.

When setting the start date for creating an equity basket, keep in mind that the technical capabilities of the software are not unlimited. The longer the evaluation period you set, the more difficult it will be for the Synthetic Basket Trader indicator to count the results of the basket and create its equity line.

We recommend:
• for the M1 timeframe, use a period of no more than 1 month
• for the M5 timeframe, use a period of no more than 2 months
• for the M15 timeframe, use a period of no more than 3 months
• for the M30 timeframe, use a period of no more than 4 months
• for the H1 timeframe, use a period of no more than 4 months
• for the H4 timeframe, use a period of no more than 6 months

Your virtual equity chart should be visually horizontal. This result can be achieved by changing the list of basket assets, the direction of their virtual trading, and changing their trading lot.

Change the size of the levels for analysis and profit fixing so that the extreme limits of the channel are located on the edge of the volatility channel of the equity line.
Set the MA period in such a way as to get a horizontal trend for the longest range of movement of the equity chart. The longer the MA period – the more horizontal the channel will be.
To receive signals when the equity line touches certain channel boundaries (central level or channel boundaries), set the alert in the indicator’s manual settings. Set the number of the level at which you want to receive the signal.

What is the meaning of these levels – look at the picture below:

After you create a graph with a horizontal movement of equity you can save the settings of the indicator in a file for automatic configuration. Apply this file to the settings of the Equity Trader utility. Thus, the settings of the Synthetic Basket Trader and the settings of the Equity Trader will be identical.

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IMPORTANT! The Synthetic Basket Trader indicator and the Equity Trader utility should always use the same settings!! Follow this rule carefully! Use the same set file to configure the indicator and the utility!

Also, use different magic numbers for each basket so that the utility can identify open orders. That is, to determine which basket they belong to!

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