*** Video Transcript ***
Hey, it’s Rimantas Petrauskas here and in this video I wanted to explain to you how to use range bouncing strategies to trade forex. You can do this manually or with the help of a special tool called the Stealth EA.
I will demonstrate you how I use this tool to trade range bound markets, what price levels I use, the benefits of hidden pending orders and why using semi-automated trading tools can give you more sleep or free time.
There are lots of different ways to trade range bound markets using tools like support and resistance levels, as well as other lines you can draw on your chart. The idea here is to sell at the top of a range and buy at the bottom of a range with the hope that the price will stay within the range. This is often what happens before a really strong trend is formed.
I have spoken with a number of serious traders who have been using these strategies successfully for years. I thought it would be a good idea to help you be able to trade these strategies by making things easier. I built a tool that will allow you to not have to sit in front of your charts all day long. It will help you take the opportunities that might be coming in the days ahead. You do this by placing special support and resistance lines on your charts of which the software will interpret as buy or sell orders depending on the conditions and your specific inputs.
The Stealth EA will use those lines as hidden pending orders. These are horizontal lines that you will place on your charts and when the market price hits one of your lines the EA will automatically open a market order for you at this point based on the commands you have entered.
In order to create these hidden pending orders you will need to draw a horizontal line on your chart manually using the MT4 drawing tools available. Then you will set the description text of the line. If you need to learn how to do this then please refer to the MetaTrader 4 manual. But basically this is very simple and is done by accessing the top menu and inserting a horizontal line… or you can just go to the top tool bar and select the horizontal line drawing tool, which is this button right here.
Once the line is drawn you simply right click on the line on the screen and select the properties option. You might need to double click the line to select it. Then you will find a line description field which will tell the EA which lines to use for creating the pending trades. All of the different parameters you use for entering the trade are separated by semicolons and also include the direction of the trade, whether buy or sell, so the EA knows in what direction to place the trade when the line is hit.
Please note that there is a limit on the number of characters you can use for the description, which is 62 characters and all the rest will be automatically trimmed. This unfortunately does not allow us to enter a lot of text, but really it is enough space to allow us to enter our commands in most cases.
Here are a list of the commands or parameters that can be entered. There are 8 parameters total that you can use. In most cases you will not need to use all of them, and in the example here we will only be using four of them.
- We will need the trade type: buy or sell
- We will need the trade size which can either be fixed lot size or percent or the amount of money.
- We will also need a stop loss level
- And we will use a take profit level
What I have here is the strategy tester for MetaTrader 4. I don’t use it the way that most people do to test expert advisors or trading robots to see if they are profitable. Personally, I never trust these results. I could talk all day about why this is a bad idea, but this video is not about that.
For this example it will serve a purpose. I will use the Strategy Tester just to show you how the Stealth EA should be used, and it will be better than simply looking at the price history on a chart. We will use the Strategy Tester here and I have Stealth EA selected with the currency pair EURJPY. I think it is better to have higher timeframes, and also this will help us to catch bigger moves.
I have chosen control points to use in this example as the model. It is a very crude method with less accurate past data, but it is just an example to show how the Stealth EA works. Don’t be concerned about the specifics of what happened in the past in this example. First I’m going to select a date, the 13th of March. I have visual mode enabled. Once I start the test I will pause it immediately and explain what we will do next. I will move this down so we have a larger chart now. I will share the expert properties that we will use. Basically everything will stay at the default values. I’m going to set the trailing stop at zero and the breakeven at zero also. That’s pretty much it–we won’t use trailing stop or the breakeven option for this example.
So now I have started the strategy tester and paused it immediately. What we have right now is this price level. You can see that from the 7th to the 11th price hovered in this range. It moved in this range of 90 pips for quite some time. I think it’s a great place to sell. I would like to see price come up and test this major level one more time. So I’m going to un-pause the test and see how it goes for a few more candles.
So we see that the price came up to test this major level again. But as important to note that I’m not trying to teach you a specific strategy here, just to illustrate how the Stealth EA software can help you trade. If you want to learn how to trade the strategy successfully then you should go find some other training resources to help you, because I am not an expert in this trading strategy I just wanted to show you the basics. From what I have learned so far it seems to be a pretty good strategy.
So since the price came up again to test this level I would see this area of 143.3 to be a pretty significant level of resistance. So I would draw the line right here. Remember, to draw the line, you go into the top toolbar and select the horizontal line tool. Then you place it onto the chart and double click on the line to select it. When selected the dots will appear on both sizes of the line, and then you can move it up or down. You can also right click on the line to find the horizontal line properties option. If you open that up and then go to the parameters tab then you can set the numerical value to anything else you like to change the price level of the line. It should be nice round prices.
Then we go back up to the common tab and we have the description field. This is where you will enter the parameters for the EA. This is where you instruct the EA what to do once price touches this line. I would like the SELL trade to be opened, so I enter “sell” and then semicolon. Then I enter “size=2%” and a semicolon again. Then I need a stop loss and take profit level next.
In order to select a stop loss level, the most common way of doing this is to select the highest point of the range in this example of the sell trade setup. And for the profit we will be looking for this at the previous resistance level which is down here. This is another major level here where you can see how price touched it three times in the past. Price was rejected and then it came back to test the level and was rejected again and then returned again to test the level and was rejected yet again. Finally it came up and broke that level and climbed higher. I would see this as a perfect level for take profit. Again we will choose a nice round number. It is one of the important parts of this type of strategy.
Here we have a 141 level. As I measure, it is about 230 pips and so that is what we will use as a take profit. I will right click on the line and open up the horizontal line properties again. Here in the description I will put “tp=230“.
Now we will calculate our stop loss. Ideally you will have a risk to reward ratio of 1 to 2 minimum. 1:3 is even better. It means that a take profit level will be two or three times larger than our stop loss level. We will aim for a 3x take profit so that will make our stop loss about 75 pips in this example. This means that one profitable trade will cover three losing trades.
Now lets un-pause the Strategy Tester and see how it goes.
Now you can see that we have a sell trade. Price came up again to touch this major level, which opened a sell trade, and then fell away. You can see also that our take profit level has been entered in. We have both a hidden stop loss and take profit level as well as an actual take profit and stop loss level. You can think of these levels as extra security in case you lose internet connection, or meta trader crashes for whatever reason. These other take profit and stop loss levels will act as security for your trade. The hidden ones will not work when the Stealth EA is not working. Hiding stops is another great option of the Stealth EA.
Once a price reaches the blue line, which is our profit level, then the Stealth EA will close the trade for you. It should be exactly 230 pips but slippage can occur so it may be a little less or more in actual trading. When I un-pause you can see that we have a winning trade pretty quickly. This would’ve made us 230 pips. So we risked 2% of our account. If I pull up the results here you can see that we started with a $10,000 balance and the lot size was calculated automatically to risk 2% with our 75 pip stop loss. Our take profit was three times bigger so that means we have earned around 6% profit on this one trade. Our balance is about $600 more right now.
Let’s get back to the chart now and let’s look for BUY trades. We need to identify a major support level. I would say that it could be the previous resistance level, which was the take profit for our SELL trade. But we will continue to wait because there may be a better level forming.
Now you can see that two candles created a good support level. Price came down and was rejected hard at these points. It was exactly at 140.43 so I would say that a round number like 140.50 would be a great level to place our next BUY trade.
So now I will go into the horizontal line properties here and put in the exact price of 140.50 and it should be a BUY trade with the size of 2% and for our stop loss we will need to identify the ideal level for take profit first. Since it is very common for the price to go at the same levels we will look back to this previous point of our SELL trade. If I used this level over there then it is about 140 pips. That would give us less than 50 pips stop loss but I’m not sure if that would work well so I would go for desire point with a bigger take profit which would allow me to use a bigger stop loss than just 50 pips. It will also give our trade more room to move. Remember that we’re on EURJPY which is a more volatile pair.
I will set the take profit to 280 pips and the stop loss will be around 95 pips.
So I have just set a BUY trade and once I un-pause the Strategy Tester then the EA should detect the trade and also set the parameters.
It has set the green line here as our entry level.
Okay so now you see that the price has touched that level again and we have a buy trade now. We have a hidden stop loss and take profit with also a security take profit and stop loss. Now we will continue to see how it goes.
It is teasing us right now which is a very normal thing to have happen. Price movement is always teasing us so that the amateur traders will close their trades early and then get back in at the wrong times.
Actually, I think it will be a good chance to also place another trade. Up here will be a great opportunity to place a SELL trade. Even when we are in a trade we can get ready for the next coming trade. It doesn’t matter how many trades you have you can place as many hidden pending orders as you want. I am going to create a SELL trade here and use the same stop loss and take profit because it is in a similar range. We will expect that next SELL trade to take profit at the place where we currently have a BUY trade.
So as soon as the price has reached that level it will close the BUY trade and open a SELL trade. We will wait for a while. Remember that smart traders are patient traders.
Now you can see another profit trade was just hit with the SELL trade being entered in.
These were perfect examples of a range bound trading. All you need to do is learn to identify the major price levels. Often the prices are nice round numbers and the ranges are often quite big on the higher timeframes. I don’t recommend you going lower than 4 hour charts. Going to daily or weekly charts will provide you with less opportunity but more accurate trades.
You will want to identify spots where price was rejected at least two times, and expect that when the price gets there a third time it will be rejected again. Here was a perfect example of where price was rejected time and time again–for several days. These major levels are very important. Once it hit this point again it bounced hard off of it and the market moved more than 200 pips in a single day.
Now we have another SELL trade here and lets see how it will go. We are expecting it to go down, but of course we are protected with a stop loss if it doesn’t. We already have two profitable trades totaling 12% profit for us so even one or two stop loss hits of 2% compared to that profit is nothing.
You can see here that another BUY trade here would likely work well. Three trades here is a good example so let’s continue watching.
Yay, we have another take profit resulting in another 6% gain. So now you can see the potential here with this type of trading.
I’d like now to explain the benefit of hidden pending orders as compared to regular pending orders with Metatrader. When you use regular pending orders it could have worked very well in these situations, but in this example it was about two weeks to get a fill on this order and for the market to come down to this point and if you are trading 2, 3, 5, 10 or 20 charts then there will be other trades happening in that time. So if you calculate your risk using 2% (or whatever it is) then you will do this using your account equity based on the equity available on that day.
You’ll have trading activity during this time, perhaps winners and losers that will impact your overall equity. Therefore you don’t want to calculate the trade size a week before the trade actually goes live because you may have risk management that is no longer accurate based on your current account equity. This is the benefit of the hidden pending orders. They will be calculated at the time when the trades are opened. You don’t want to have to continuously recalculate your trades all the time and this Stealth EA will save you lots of time doing all of the recalculations for you automatically.
If we look back at the history you can see these sizes and how they grew in size with each growth in account equity. With regular pending orders this is not possible. You would have to manually edit them with each change in equity. This means you will have to delete all pending orders every time your equity changes and then place them back again with the new lot size.
Another advantage of the Stealth EA is to think of it like your employee. You could hire someone to sit in front of the computer and trading charts for you and trade in this way. They could work for you 24 hours a day, but this is going to cost a lot of money. They would obey your instructions, but in this way you can have Stealth EA to accomplish this for you without the huge cost of employees.
It’s much easier to use a software tool like Stealth EA to help execute your trades for you. You would just check the lines and prices as you see the market updating itself. You might read some news and you think that it will send the prices in a certain direction or to a certain level and so you want to adjust your strategy or delete the order then it is simple to do it with this tool. If you want to change entry price you just drag and drop the line at that new price.
You could even have this running on your VPS server where you would just login to your server using your tablet pc or your mobile phone to change your trades. Even on a plane we have internet these days so you could do your trading in that way.
I encourage you to read and learn more about range bound strategies like these. With the right knowledge and tools the forex trading can become easier and more successful for you.
I hope you enjoyed this video and have found it to be useful. If you have any questions please go to my website at EA-Coder.com and contact me there. I will be glad to answer all your questions. Please be sure also to subscribe to my newsletter because I will be creating more videos like this. I hope you have a great day and I will see you later. Bye.