Read more about the Indicator and the Robot EA below
Idea behind this Expert Advisor
The idea behind this indicator is very simple. While studying the GBP-USD hourly chart, I realized that some currency pairs like GBP-USD can’t stay away from the Simple Moving Average (SMA) line for too long. I also observed that it is more evident on mature currencies (or stable currency pairs) than the ones that I call – “less stable” or “unidirectional”. For example, a pair like EUR-AUD which probably not the most traded currency pair, the movements are usually unidirectional in nature and the pair stays above or below the SMA line for longer periods of time. However, for pairs like GBP-USD, the pair keeps coming back to the SMA line more frequently. I call such pairs as “bi-directional” which means nothing but pairs that do not hold a specific direction for longer periods of time (except for periods where there are market changing events or really significant shifts).
The strategy in case of such “bi-directional” pairs is very simple -if you find the pair has stayed away from the SMA line for some time, open the trade in the direction of the SMA line. In other words, if the pair is above the SMA line – short it and go long when the pair is below SMA.
It sure is a very simple idea but it takes another indicator to pick out real winners – CCI (Commdities Channel Indicator). Also, it took a lot of testing and research to find the best combination of SMA and CCI that lead to the optimum results.
Keep reading and you will see how combining the SMA with CCI gives winning trades for GBP-USD pair consistently almost 80% of the time.
For now, I have tested this strategy on GBP-USD pair and few others. Most of the tests other than GBP-USD did not give good results. However, results on GBP-USD pair were really amazing.
Here is what happened when I used my robot program on GBP-USD pair on hourly chart (see the details below on what parameters were used for this test).
As you can see in the chart below, I have run the strategy on hourly chart from 1993 till 2013 and it has grown the account over SIX TIMES! Not bad … indeed..
Let me explain the indicator now. Look at the image below. The indicator uses SMA line of 30 and CCI with period of 30 as well. The chart is set to hourly period on GBP-USD pair.
What we are looking for is point on the chart where the currency pair is just crossed the SMA line. For example, if you have 3rd stick high above SMA and highs of 2nd and 1st sticks below SMA line, you are looking at a point where the currency pair has recently moved from above the SMA line to below. This is the time to buy. But you have to check two other things – 1 – the last stick is such that open is above close and 2 – CCI of the last stick is above -100. When all these things come together you buy the pair and if the setup is exact mirror image of the situation, you sell the pair.
As always – a strategy’s success is defined by the exit criteria. Here, what I do is close the open position when the pair meets the SMA line again. In other words, whenever the Ask line is above SMA value and bid is below it, this is the point to close the open trade.
This strategy is tested with one order per pair at any given time. In other words, the strategy does not open multiple orders. It opens new orders only when the current open order is closed for that pair. However, there is no reason to setup this EA on multiple charts with different periods (H1, H4 etc.) and hope to multiply the earnings. But be careful, the tests on H4 chart have not been as impressive as H1 or for any other period for that matter.
The MT4 EA for this Strategy
I have written a simple MT4 EA and you can download the same on my Download page.
Use the following setup for optimum results. The parameters are self-explanatory so no need for special explanation. However, if you need any help, contact me and I will be glad to help.