The use of filters and common sense in trade strategy
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    The use of filters and common sense in trade strategy

    Here we’ll talk about how the simple and available filters and our common sense can make the uncomplicated trade strategy with the 50/50 profit minus spread turn into the effective one that is to make the balance 50/50 lean towards you.
    Well, let’s begin.

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    Let’s begin with the simple reasoning.

    If you carefully look at the daily chart of any liquid tool, you can see the following pattern: in the up-trend there are more profitable days (days when the closing price is above the opening price) than unprofitable ones.
    One may take this postulate as a foundation, because otherwise the market cannot rise or fall, I mean of coarse the liquid market where there are no big and frequent gaps.

    As we can see on the picture there are more green candlesticks than red ones in the rising market. The opposite is true for the falling market.


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    There is a question arising: how can we use it for our selfish ends?

    It’s simple. For example, we’re trading forex intraday.
    Here’s the description of the popular TS for intraday trading. Some people call it the player’s system, some – the paramon’s system. This is not important for us.
    The whole point is important and it is: We all know that Forex is the 24-hour market, hence it has the certain feature. The trading day is divided into three sessions for convenience.
    Here they are:
    1. from about 8:00 – 9:00 to 14:30 – 16:30 terminal time – it is European session. Why?-you may ask. Just because it is when the European banks are open.
    2. from about 14:30 – 16:30 to 21:00 – 22:00 terminal time – American session.
    3. from about 22:00 to 8:00 – Asian session.

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    Now let’s talk logic: who needs EUR/USD the most???
    Right, Europe and USA. Therefore the main trading volume will take place during the European and American sessions. The Asian session will show the relatively slack trading of this tool (at a small volume and as a rule in the narrow tunnel)
    The TS which I’m talking about is based on the breaking the levels of this tunnel which is formed by the prices within 21:00 – 00:00 and 8:00 term.time.
    Here’s the example of EURO where the indicator highlights the Asian session.


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    Let’s go on.

    There is an indicator that draws levels created by the term.time 8:00. This indicator also includes the thin lines which go 10 pips higher than the levels. This filter prevents the false breaking of the levels.
    We work with the help of this indicator under the TS in the fallowing way: we simply open buy-stop 10 pips higher than the upper level, stop-loss – under the lower level, sell-stop – 10 pips lower the lower level, stop-loss – above the upper level. And this is how we are trading. Somehow somewhere it is gonna breakthrough anyway.


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    The breakthrough in both ways is certainly good, but it still looks like 50/50, and we want to see more profitable signals. In order to have bigger chances for ourselves, we should trade in the trend way.
    And the simple SMA can help us figure this trend.

    So, if we trade EUR/USD on the hourly chart then we use SMA with the period 100-120 (about a week).

    So, if the SMA is blue then we just buy breaking the upper level created by the morning tunnel. If it is red – we sell breaking the lower level.

    buy


    sell

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    So, let’s sum up.

    1. to trade only in the SMA way, if it’s blue – we buy (breaking the blue lines), if it’s red – we sell (breaking the pink levels).

    Here are some pics for example





    2. to trade only during a certain period, when the tool is the most active, this is because at this active period the breaking is more likely.
    We trade from 8:00 till 18:00 term.time. If there hasn’t been a breakthrough during that period – we do not enter the market no matter what!!! The only thing we can do is to close positions.


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    As you may notice, the SMA is pretty good at showing the EURO trend. What else can we get out of it?
    We also may use our simple maximum levels while the trend keeps going on. While the SMA is blue (the up-trend) we’re gonna buy not just the breaking the blue levels but also the kickback from pink ones. The opposite is true when the SMA turns red: we start selling the breakthroughs of pink levels as well as kickbacks from the blue ones.

    What can we do next? How can we trade kickbacks? Should we wait for the restatement?

    Example: either to find a pivot candle or several trend points is up for you. You pick what you like or understand the most.

    Pics with kickbacks.




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    As I already mentioned, that filter (SMA100) is good for EURO. If you try to use it for British pound it may look poor. Well, at least I didn’t like it. Because during the flat periods it has the strong noise.

    Here’s the chart


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    We have figured that SMA100 is pretty “noisy”. For the beginners: having the noise means having many false or doubtful signals. Something like that happens when you use SMA100 with GBP (we saw that on the picture). What can we do?-you may ask. There is a way out. You may increase SMA period, it will become slower, the signals won’t be that frequent at slight market changes. But then our TS will react on market pivots very slowly. Actually SMA200 doesn’t look well with GBP.

    Here’s the chart


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