The “Traffic Light” Forex Strategy is of interest due to the use of a unique collection of indicators in it. The strategy itself refers to the trendy ones. This is an effective solution with the help of which you can successfully trade both in normal and incent accounts.
Before reading the article and writing your questions in the comments section, I recommend to watch this video. It’s not long but covers the biggest part of questions on the topic.
It contains a deep analysis, based on which the forecast of the movement of the price of the selected currency pair is constructed. Even though the recommended pair is EUR/USD, the strategy can be used for trading in other areas.
Description of the Traffic Light Forex strategy
Since the strategy is classified as a trend the most optimal periods (time frames) for trading are H4 and D1. Among the two, preference is given to the daytime period.
If you choose smaller time frames, then the number of transactions will necessarily increase, which will entail correspondingly an increase in the number of wrong and false signals.
For this reason, it is recommended to trade only on the above mentioned periods. Although some traders trade on five-minutes (M5).
The indicators used in the strategy
In its trading, the Traffic Light Forex strategy uses only 4 indicators:
- 1 standard, included in the basic set of MT4 indicators,
- and 3 other important indicators.
All of them together can identify the direction of price movement on the chart (trend) and tell the player the point of entry and exit from the trade.
Here they are:
- CCI Oscillator (standard) with a period of 14;
- Modified HMA (modified indicator of the moving average);
- RSI Custom (differs from the standard RSI);
- Indicator GoldMiner 2.
Let’s briefly consider the principle of the indicators in the Traffic Light strategy:
Modified HMA has the feature of changing its color when the trend reverses the price movement on the chart.
In its parameters, you need to set the period of the moving average, and also you can note at what distance the levels TP and SL will be drawn for the open position. If you trade on D1, then it’s better to put a period of 20. If you trade on D1, then it’s better to put the period at 20.
There is a very useful function of alerting with an audible signal about a trend change in the market. It is included in the “Alerts” field.
The next indicator used in the Traffic Light Forex strategy is RSI Custom. It works in the same way as the standard RSI, but it is displayed in the form of a three-color histogram.
Depending on the situation on the market, its columns can be of 3 colors:
- and green (like in a traffic light).
If someone does not like it, it is possible to change the colors to others. In the RSI Custom indicator settings, you can define the level for the level “valeur1” and “valeur2”. When the price closes below or above the set level, the changing color will signal about it.
The third strategy tool is the GoldMiner 2 indicator. It also has the form of a histogram, but with two colors (red and blue).
Performs an analysis of the last 300 bars, characterizing the current state of the Forex market. The change in the analysis can be made through the parameter “CountBars”. The principle of operation of the CCI oscillator is known to everyone, so there is no need to reconsider its operation.
The Forex Traffic Light rules of trading
Signal for currency purchase (Buy):
– RSI Custom is painted yellow or changes to green;
– Modified NMA shows green color;
– Goldminer2 draws in green;
– CCI is on the zero line or crossed it from the bottom to the top.
This combination in the Traffic Light can speak about a direct signal for opening a long position at the level of a closing Japanese candlestick (if trading on D1, then at the close of the trading day).
In the opening order, you do not need to set take profit and make a stop at the level of the nearest local minimum.
When the CCI oscillator is below the zero mark and HMA Modified changes its color to the opposite one, you should close the position.
Signal for sale of currency (Sell):
– RSI Custom painted yellow or red; –
Modified NMA shows red;
– Goldminer2 draws in red;
– CCI is on the zero line or crossed it from the top down.
To get a clearer signal, one should also take into account CCI levels, which indicate the oversold and overbought (-100, +100). When the indicator crosses these levels and the oversold and overbought signals coincide with the HMA Modified data, the player will have the opportunity to exit from the position at the peak of the coming trend, without the need for waiting when the CCI crosses the zero mark.
Feedback on the Traffic Light Forex strategy
The Traffic Light Forex strategy is clear and simple. It does not require a deep knowledge of technical or fundamental analysis of markets. Many of the traders who seriously tested her work, give feedback on Traffic Light that it is also the most profitable.
However, there are some difficulties here, too. For example, some traders in their feedback on Traffic Light warn that the indicator line of HMA Modified can easily redraw the previous bar. This makes a part of the deals invisible. Goldminer 2 is also capable of repainting the four preceding candlesticks.
Beginners, above all, like the visibility in the decision. Traders like that the functionality of the indicators used in this trading system eliminates the need for them to plot 2 moving averages to determine the entry to the position.
When working with the “traffic light” on the chart, you can immediately see that the correction or reversal begins. It’s enough just to follow the schedule carefully and react in time to the received signals.