Trading system based on price ranges


The figure shows the Keltner channel and several positions open for a breakthrough of its borders. The center line of a channel is the moving average of a "typical prices spark» (high + low + close) 3, and the boundaries are moved away from the center line on the value of the average range of candles (high - low). Studies in the literature of this type ranges shown their effectiveness in different markets. Keltner of the channel with the successful selection of the averaging parameter lines are significant consolidation.

Setting the channel width is not available, so the distance between the boundaries determined by the natural market volatility. In most cases, the width of this channel is not sufficient to make a transaction rollback in prices from the boundary inside the channel. Therefore boundaries serve as guidelines for open positions for a breakthrough channel, as shown in the figure.

In addition, with such a small width of the channel opposite to the boundary can be used for the production of protective stop-loss order. So, for a long position in Figure 1 natural benchmark for a protective order is a lower bound of the channel (break this limit would mean the possibility of significant progress in the market down), here and put a stop 1. Shows the same pattern, and the middle line range acts as a line of consolidation, so it is natural to use it to close the position at a profit (the order placing stop-trade).

Thus, a long position 3, open on the top of the channel breakout (protective stop was set at the lower limit), brought a good profit. Several observed kickbacks prices down even break the upper boundary of the channel, so there was no reason to prematurely close this good position.

But the pullback, which reached the middle line, is already an important signal, as the average line here serves as a support line, and its breakthrough could mean the beginning of a bear market (or, at least, the end of the bull). Therefore, below the average of the channel is natural to Sell to close the position at a profit (warrant Exit 3).

It should be noted that there are examples of systems that use not only the upper and lower limits of the range, and a few pairs of these lines. With more distant lines can be used as a guide for the installation of protective orders or fix the profit in the positions that are open on the internal lines to flip positions etc. Detail here, such approaches are not analyzed, because the logic of trade rules in them is the same as was discussed above.

Trading rules for the price range

Trading rules of the systems are based either on the idea that the range contains the bulk of market movements (hence the regular price pullback from the border within the range necessary to respond open), or the beginning of a trend that will be indicated when the price exceeds the limit (beyond the range of motion is deviation from the previous price behavior, this deviation may be the beginning of a new trend, therefore, is the time to open a position in the direction of the breakout).