15M Envelope Strategy

Here’s a simple strategy I use that does quite well. Is it perfect? No. Could you put your own twist on it? Of course. This strategy is derived from a cross between Larry Williams and Bill Poulos with my own variation added in.

[EUR/USD 15M]

Indicators
-MACD (3,10,1)
-9 SMA envelopes (deviation at .05 and 0.1)

Setup Bars Defined
Pin Bar
The wick or tail is at minimum half the length of the entire bar and divergence is present

Naked Close Bar
Close of bar is lower / higher than previous bar low / high (buy/sell opposite end of close)

Smash Bar
Close of bar is in lower / upper 40% of total bar length (buy/sell far end away from close)

Rules
(Long setups)
-Buy on break of smash bar or naked close bar (end furthest from close). If it hasn’t broken within 6 bars, disregard.
-Buy break of pin bar that had dipped below 0.1 band and divergence is present. 6 bar rule applies also.
-Close of setup bar must be above lower 0.1 band (except for pin bars)
-High of setup bar must be below upper 0.05 band
-Buy 0.5 pips + spread above setup bar
-Place stop below setup bar
-TP at 1:1 (holding further does work but with mixed results)
-Move to break even a couple pips shy of target

(Short setups opposite)

Final Notes
My objective is 1.5 net wins for the day. I start at 0800 GMT and trade until objective is met or 1630 GMT, whichever is first. So for example, if I risk 4% per trade, my goal is 6% per day. Avoid trading on Non-Farm or FOMC days.

Some more examples.

Interesting strategy!!
One question:
Is the Smash Bar has relationship with previous bar?
Can't grasp clear idea on the 'Smash Bar setup'.

hi there

How do you set up the SMA envelopes?

thx

The smash bar is stand alone. It has no relationship to the previous bar unlike the naked close bar which must close lower or higher than the previous bar. As long as it is within the envelope parameters it is a valid setup. Does that answer your question? When I get a chance I'll dig up some more chart examples of the smash bar.

Select "envelopes" under "oscillators". Use these settings for one and 0.05 for the other.

Here are a few examples from today's chart. Not all setups are marked. On this chart the large smash bar is also a naked close bar. Forgot to add that on chart.

Whoops, I just realized that I marked up a 5M chart in the above example. I only use this on the 15M but setup bars like this occur on all timeframes.

To get a better feel for the setup bars you can also remove all indicators and work with a blank chart. Working without any indicators such as envelopes, bollinger bands, etc is possible but you can also get chopped up pretty bad in my experience. A couple years ago I traded this without indicators and simply exited on the second profitable close. That can work over the long run as well. Basically what I am getting at is that there are many things you can do with this. Feel free to tweak it and post any ideas.

Thanks for posting your strategy 133. How do you treat multiple setup bars close together, like two consecutive smash bars, etc.?

Well I suppose if we are feeling brave we can just load 'em up.

What a day that was.

jmag, simply take the most current setup. Do you have a chart example to show me what you are looking at? The chart below shows two smash bars followed by a pin bar with divergence. If the pin bar wasn't there I would enter on the break below the second smash bar even though it is an inside bar. Thanks for posting your charts!

Thanks 133. So you never have more than one open trade on the same pair?

Smash Bar
Close of bar is in lower / upper 40% of total bar length (buy/sell far end away from close). Kindly please explain this little bit further hopely with picture. Or is it almost same as pin bar? I have difficulty understanding what you mean. Thanks!

I don't add to an existing position but I will open a new position in the opposite direction. Sometimes both will win but usually it just leaves me with a winner and a looser (net even between the two) which is better than simply one net loss. You can try to modify the strategy where you don't do this, especially if you are unable to hedge with your broker. I have tried to stick with one direction in the past by using trends on higher time-frames, etc but I wind up missing too many good trades. Like I said at the beginning, this strategy isn't perfect by far but it does work.

The attached chart below is a recent example of a not so good day that at one point has two trades going in opposite directions. Here are the setups that occurred:

1) Smash bar - sold two bars later (loss)
2) Inside smash bar - bought next bar (winner)
3) Smash bar and naked close bar - sold two bars later (loss)
4) Smash bar and naked close bar - bought two bars later (loss)
5) Smash bar - bought next bar (winner)

Note - There was a smash bar / naked close bar that closed barely outside of the upper envelope (0.6 pips above). Technically that was not a setup BUT since it was so close and divergence was present you could bend the rules slightly and had a winner.

A pin bar is usually a smash bar also. I marked examples of smash bars below, two of which were also naked close bars (setup #1 and #5). Let's say hypothetically that the second trade setup I marked has a high of 100 and a low of 0. You can see that it closed somewhere around 95 which would be in the upper 40% of the total bar length. Now, if it were to have closed at say 55 or about mid way down the bar, it would not have been a smash bar. Does that explain it a little better?

133, I notice your charts are all eur/usd. Do you trade other pairs?

I'm trading this on a tester using price just randomly from back in 2010. I am getting about twice as many wins to losses so far. I want to trade the first few hours of the US session only so am trying to test just within those times. If I make it to 100 trades I will give a report. Posting some more wins for fun.