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DailyFX Home / Technical Analysis / Forex Trading Strategy / Trading Strategies Explained
Trading With the FXCM SSI - Automate the Range2 Trading Strategy
By David Rodriguez, Quantitative Strategist
06 March 2013 12:00 GMT
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In our guide to FXCM Speculative Sentiment Index-based trading strategies, we discussed the why trade against the crowd? with a specific look to our SSI. This article covers the how can we trade with crowd sentiment? with a closer look at the Range2 trading strategy. The Range2 trading strategy is fairly unique in that it is primarily a counter-trend strategy. It attempts to buy when currencies have fallen and sells when theyve strengthened. This stands in clear contrast to our other SSI-based trading systems, which most often buy into strength or sell into weakness. Below is a fuller explanation of trading logic so that we might understand the pros and cons of trading with and against the trend.
Automate our SSI-based trading strategies via Mirror Trader free of charge Buy Rule: Buy when the 28-period RSI crosses below 30. Sell Rule: Sell when the 28-period RSI crosses above 70. Filter: System can only buy or sell if the Speculative Sentiment Index ratio is below 1.5 or above -1.5. Understand more about the Speculative Sentiment Index with this article. Profit Targets: Range2 does not use fixed profit targets. Instead the system takes profits via a trailing stop loss. Stop Losses: Calculate the Average True Range (ATR) on the past 14 daily bars. Set a trailing stop 1 ATR away from entry price. If short, this means placing a trailing stop above entry price and will move lower if and when the currency moves lower. If long, the system places the trailing stop below price and moves higher if and when the currency pair trades higher.
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Trading With the FXCM SSI - Automate the Range2 Trading Strategy | DailyFX
11/24/13 8:56 AM
Range2 uses no hard profit targets and instead relies on a trailing stop loss to ultimately take profit on its trades. If SSI is not at important extremes, the counter-trend trade may play out in our favor. Thus we dont want to limit our profits to a fixed amount. One suggested strategy is to manually trade Range2 strategy buy and sell entries with a mix of a hard profit targets and the trailing stopmuch as our Breakout2 trading system employs. This money management method serves as an attractive template to managing trades. Sample Trades from Range2 as Shown on a NZDUSD 60-Minute Chart
Chart Source: FXCM Marketscope, prepared by David Rodriguez The SSI, while not pictured, would have prevented the strategy from buying or selling at times not marked on the chart.
Past performance is not indicative of future results, but our experience shows that using the Volatility Percentile and Trend indicators helps improve performance of the Range2 trading
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Trading With the FXCM SSI - Automate the Range2 Trading Strategy | DailyFX
11/24/13 8:56 AM
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Automate our SSI-based trading strategies via Mirror Trader free of charge
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View how to automate the high-volatility Breakout2 Trading System via our previous article and webinar recording. Auto trade the trend reversal-trading Momentum2system via our previous article and webinar recording. Trade with strong trends via our Momentum1 Trading System and view an archived webinar. Automate the DailyFX Breakouts on Volatility System article, webinar. Take advantage of forex intraday seasonality via our DailyFX AsiaRSI Trading system, view archived webinar. Why do most forex traders lose? How can we avoid common mistakes? --- Written by David Rodriguez, Quantitative Strategist for DailyFX.com To receive the Speculative Sentiment Index and other reports from this author via e-mail, sign up for his distribution list via this link. New to FX markets? Learn more in our video trading guide. Contact David via Twitter at http://www.twitter.com/DRodriguezFX Facebook at http://www.Facebook.com/DRodriguezFX
DailyFX provides forex news and technical analysis on the trends that influence the global currency markets. Learn forex trading with a free practice account and trading charts from FXCM.
06 March 2013 12:00 GMT
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