Consolidation Forex Strategy For Metatrader 5

It’s a well-known fact that currency pairs start consolidating or trading in a tight range following a strong trend.

Trend traders can decide to exit their positions until the market start trending again or they might just adjust their strategy in order to utilize what the market is offering them (taking advantage of the range).

The Consolidation Forex strategy for Metatrader 5 is designed to help traders predict market consolidations with a chance of profiting off such moves range-bound moves.

If the market was in an uptrend before the consolidation began, then our most likely price setup will be a downward move.

When price tests the support of this downward move, then we can expect price to rebound.

This principle is largely going to influence our trading rules for this strategy.

Trade Setup 

MetaTrader 5 Indicators: Moving Average.ex5 (Parameters Modified; Period=200), BB_stops.ex5 (Inputs Variable Modified; Bollinger bands period=24), Fibonacci Retracement Tool

Trade Style: Scalping, day trading, swing trading

Trading Sessions: London | New York | Tokyo

Currency Pairs: Majors, cross pairs, exotics

Platform: Metatrader 5 (MT5)

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Buy Trade Example: USDCHF, H1 Chart

Fig. 1.0

Trading Strategy Rules For Buy and Sell Trades Explained

Buy Entry

Enter a buy trade if the following trading conditions are met:

  1. If after a currency pair has been in a bearish trend for sometimeand begins to show signs of consolidation by testing the blue 200 SMA indicator resistance line around the “A” labelled region on Fig. 1.0, we should eye a bullish signal away from the confirmed resistance area (so we don’t get caught in the middle of the range).
  2. If the dodger blue line of the BB_stops custom indicator aligns below the candlesticks (away from our confirmed resistance zone) as illustrated on Fig. 1.0, price is said to be pushed higher i.e. a confirmation to go long on the specified forex pair. Notice how all this appears to happen around a Fibonacci retracement support level, thereby giving it more credence.

Suggested Stop Loss for Buy Entry: Place stop loss below the most recent support low.

Suggested Exit Strategy/Take Profit for Buy Trade

Exit the buy trade if the following trading conditions are met:

  1. If while a bullish trend is ongoingand price bounces off the blue resistance line of the 200 SMA indicator, it is pointing to diminishing bulls power, as such an exit or take profit is recommended.
  2. If the BB_stops forex indicator pops up a sandy brown line that stays above the candlesticks as illustrated on Fig. 1.0, bulls power is said to be weaning i.e. a trigger to exit or take profit at once.

Sell Entry

Open a sell trade if the following trading conditions are met:

  1. If following a currency pair bullish trend sentiment for sometimeand begins to show signs of consolidation by testing the blue 200 SMA indicator support line around the “A” labelled region on Fig. 1.1, we should expect a bearish signal away from the tested support area (so we don’t get caught in the middle of the range).
  2. If the sandy brown line of the BB_stops custom indicator aligns above the candlesticks (away from our tested support zone) as exemplified on Fig. 1.1, price is said to be dragged lower i.e. a confirmation to go short on the designated currency pair. Notice how all this appears to happen around a Fibonacci retracement resistance level, thereby offering the sell signal more weight.

Suggested Stop Loss for Sell Entry: Place stop loss above the most recent resistance high.

Suggested Exit Strategy/Take Profit for Sell Entry

Exit the sell trade if the following trading conditions are met:

  1. If while a bearish trend is runningand price bounces off the blue support line of the 200 SMA indicator, it is signaling weaning bears power, as such an exit or take profit is advised.
  2. If the BB_stops forex indicator pops up a dodger blue line that stays below the candlesticks as seen on Fig. 1.1, bears power is said to be halting i.e. a trigger to exit or take profit immediately.

Sell Trade Example: USDCHF, H1 Chart

Fig. 1.1

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MT5 Trading Indicators Used For This Strategy

The 200 SMA (Simple Moving Average) is a technical analysis indicator that smooths out price data by constantly creating an updated average price.

The BB_stops indicator is a modified Bollinger Bands indicator that is used to determine trend exhaustion, as well as reversals.

The Fibonacci retracement indicator is a technical tool that employs a technical analysis style for spotting support and resistance levels.

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