RSI and MA Channel

Hi, this is something I've been looking at for the past few weeks. Might need more tweaking, but I think entry conditions are quite solid and very clear.

SELL WHEN CANDLE OPEN OUTSIDE OF CHANNEL
AND CLOSE INSIDE CHANNEL BETWEEN THE OUTER LINE(YELLOW)
AND THE MIDDLE DOTTED LINE (RED) WHILE RSI (7)
CROSS OR BELOW 30

SL IS HIGH OF CANDLE THAT CLOSED INSIDE THE CHANNEL

SET SL TO BE WHEN PRICE TOUCH CENTER LINE OF MA (WHITE LINE)
OR CLOSE HALF ORDER AT THIS POINT AND TAKE PROFIT
WHEN PRICE REACH THE OTHER SIDE OF THE CHANNEL.

OPPOSITE FOR BUY ORDERS

I'm attaching the template file:

SMA 150 (white) with levels 500 and -500 (yellow) - USE 50 FOR 4 DIGIT BROKER
SMA 149 (white) with levels 250 and -250 (red dotted) - USE 25 FOR 4 DIGIT BROKER
RSI 7 with levels 30 and 70

I'm currently running it on AUDUSD H1 and have not spend much time on other currencies. Feel free to explore.

08 Oct 2012 - Seems to produce false signals in strong trendy markets - proceed with caution.

Looks very nice and love the simplicity of it....have you tested this in lower timeframes...say, 5 min, 15 min?

Hello FXglider,

Your system looks great! I have a question. Your template shows SMA 150 applied to low. Is it right? Because you´ve said EMA 150 and EMA 149.
Thanks for your support.

Up till now only work on H1

Thanks for spotting the mistake - SMA is correct! I've changed the 1st post.

not to intrude on your system, but I did want to throw out a different perspective as I think you could be missing some large moves when the price starts to trend.

I also use a 150ma channel type system, but on 4hr with figurelli rsi. So our systems are very similar.

Simply put, I enter if price breaks the upper/lower channel (preferably a close above/below) then I look to figurelli rsi to enter additional positions only selling if below the channel or buying if above.

Figurelli rules -
Sell - crossing from above 90 to below 79
moves into no action zone (55-45) and back below 44

Buy - crossing up from below 10 to above 21
moves into no action zone (55-45) and back above 56

I will continue entering positions until the opposite side of the channel has been breached. For example once the lower channel has been breached I will continue using the rsi to enter sell trades until the long side of the channel has been breached. So I do enter trades even if the price is actually inside the channel.

I use the oppposite side of the channel as emergency stop- although you could use the swing high/low. I feel the opposite channel stop allows more room for price to fluctuate.

TP1 = 150 sma channel close with 1.61 deviation
TP2 = 150 sma channel close with 2.61 deviation
TP3 = 150 sma channel close with 4.236 deviation

another possible exit would be to exit short trades when RSI moves above 21 from below 10. Exit long trades when RSI moves from above 90 to below 79

Breakeven is 1/2 stop loss

Trading like this allows me to position build and capitalize on trending markets. I am not saying that your method isn't valid, I am simply offering another perspective on ma channel trading.

One thing that I have always found invaluable for new indicator based methods when testing is to go back 1 or 2 years and come up with something that appears to work on past data. Then bring it forward to today and see if the same rules apply.

The reasoning behind this is that anyone who trades is actively watching the market. Our brains are very adept at picking up nuances in price action, especially if a "new pattern" emerges. The problem with this is you do not know if that pattern is consistent or an abnormality.

I have found it very, very common to watch the markets for a few weeks when trading and come up with a new indicator based off of market action. However, most of the time if I take those rules and go back 6 months or a year, the same rules that work now do not really work out.

I personally would not trade anything that is transitory - meaning its a relatively new phenomenon in terms of price action, retrace, volatility, support/resistance etc unless you can go back in time and the same rules generally apply and work.

Of course there is nothing that in infallible - there can and will be times where methods do not work. What you do not want is to be curve fitting your indicator and rules to the present without actually realizing you are doing that.

Your method is most welcome!

i'm with your method +1

...demoing this for a while.

Edit: ..woke up to TP being filled, price came within a few pips of SL during Asia. I like the way the RSI gives a heads-up when it breaks it's own TL.

My First Trade with this strategy on demo Buy AUD ... looks like going to hit Stop

Nicely done!