Timeframe: 5 minutes
Currency pairs: any trend
Indicators : none
Platform: MetaTrader 4 or 5
Recommended broker for applying the strategy: Alpari , Roboforex
The Forex market is replete with various kinds of strategies for every taste and color. Currency traders can choose for themselves a number of effective trading systems by timeframe, currency pairs, trading methods and other characteristics. This is the main advantage of Forex – with the right approach, you can earn in various ways. In today’s review, we will look at the “Shadow Doll” intraday scalping strategy, which has become very popular among domestic and foreign forex traders.
The popularity of the strategy is not surprising, because it is very simple, understandable, and most importantly very effective. Testing the strategy showed impressive results – about 85% of deals ended with take profit, and an additional advantage is that you can trade almost around the clock and on different currency pairs.
Principle of the trading system
The main principle of the strategy is based on the fact that after the breakdown of the so-called psychological levels, which are represented by round numbers, the price of a currency, as a rule, performs a rollback or retest of these levels. It is these kickbacks that are planned to be taken as profit in the trading system.
At the moments of breakdown of round price levels, many traders and algorithmic systems come in the direction of breakdown, therefore large players, in order to remove stops, perform a return after breakdown. Thus, we will enter positions against the total market mass and collect profits when losers are pushed out of the market.
For trading, it is necessary to mark the nearest round levels near the price. These levels are horizontal marks on the price chart, which correspond to values with two zeros on four-digit prices after the point, for example, 1.4700, 1.4800, 1.4900, and also similarly on prices with two signs after the separator – 123.00, 124.00, 125.00. The test method was definitely the most probable impulse size after the breakdown, which is equal to 30 points, so according to the strategy we will set a pending order in advance for entering against the impulse movement.
To begin with, we note on charts the nearest round price levels above and below the current price mark.
Rules for entering the purchase
As soon as the price of the currency pair has broken through the lower round level from top to bottom, we place a Buy Limit pending order at a distance of 30 points from the marked level. As practice has shown, such a distance is optimal for impulse movement after a breakdown and, as a rule, after passing 30 points on an impulse, the price starts to roll back to carry out those who entered the position on the breakdown strategy.
The exception is the currency pair US dollar versus Canadian dollar. According to statistics, it is necessary to place a pending order on this currency pair at a distance of 50 points from the level.
Also, do not enter into transactions during or shortly before the release of important macroeconomic data related to the country whose currency you are going to trade.
Take profit set at a distance of 7 points from the entry point, and a protective stop order 21 points below the entry in the long position. This difference between stop and take provides the highest potential in terms of the number of profitable trades. The number of profitable positions more than covers rare stop-loss and allows you to earn a good profit afterwards. When you install a smaller stop, there is a high probability of closing a position with minuses as a result of market noise, after which the price usually goes to the level of the expected take. With an increase in volatility, a slight increase in the size of take profit is permitted, however, in this case, the indicator of the number of profitable transactions may decrease, despite the general increase in the size of profits.
Rules of entry into the sale
For entering a short position, the rules are equally reversed. As soon as the price breaks through the upper round level from the bottom up, we place a pending order to sell above the level by 30 points or 50 points for the pair USDCAD. After entering the position, we immediately set a protective stop-loss above the entry point to 21 points and a take profit, which will be below the entry point by 7 points.
Placement of pending orders
To efficiently trade several instruments at once, you can pre-order buy and sell orders at the nearest round levels from the current price. After one of the orders triggers, you must cancel the second one and set a stop loss and take profit.
Timing trading schedule
When working on the Shadow Doll strategy, it is also important to consider a time frame. The main trading session on the system starts at 8 am GMT or 11 am Moscow time and lasts until 8 pm GMT or 11 pm Moscow time zone. After this time, all unexecuted orders should be removed, and open positions should be left until the execution of a stop or take order.
You can also trade on the system at night, after the opening of the Asian trading session. Thus, we can continue to trade round levels from 23 hours GMT or 2 AM and 8 am GMT (11 GMT). It is also important after the evening session to remove all outstanding orders and wait for the closing of the current positions.
Advisor for trading
Since strategy trading is carried out almost around the clock, as well as on several currency pairs at once, you can automate the main part of the process with the help of a special advisor.
You will only need to specify price levels for work and the adviser to independently set pending orders, stops and takes after entry. You can also specify temporary periods for trading, after which all non-fulfilled orders will be automatically canceled.
To install the adviser, open the chart of the required currency pair and drag the adviser onto it from the panel. In the Lot Size parameter, specify the size of the position to be traded, and in the Price1 and Price2 fields, set the price values of the nearest round levels. Since we do not know where the prices will go first, we set the upper and lower values immediately, and after entering one of the orders, the adviser will automatically remove the second one. Next, set the value of the stop-loss and take-profit in the corresponding cells, as well as the distance for placing an order to enter the Distance to entry field. As mentioned above, we use an indent from the round level of 30 points for all currency pairs except the Canadian, who needs to set 50 point indent. So that the adviser automatically removes the unfulfilled orders after the end of the trading session,
After all the parameters have been saved, the price chart will display the lines of the placed orders at the specified indent from the round level.
The Shadow Doll strategy is great for intraday scalping on various currency pairs. The best results are displayed in the framework of wide side panels for currency pairs. In case of trend movements of transactions, a smaller execution is performed and it is not recommended to set a large size of the take, since the strategy is in fact counter-trend.
The statistics, which were obtained as a result of the formation of the strategy, are relevant until mid-2016, however, as the reviews show, the strategy continues to function at the moment. In case of deterioration of the results, conduct a test to debug the size of the foot and take. Also do not forget about the elementary rules of risk management and do not trade in a lot that exceeds the permissible threshold, taking into account the size of your deposit.