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Intraday Strategy (Japanese Candlestick Patterns + RSI)

There are many valuable strategies that require knowledge of candlestick patterns and oscillators. However, not all of them are profitable. When you start trading with them, you may face situations where the strategy is not moving in your direction. Fortunately, we tested several strategies based on a combination of oscillators and candlestick patterns and chose the best one for you! Please welcome the RSI and Bullish/Bearish Engulfing Pattern Strategy!

Strategy Configuration

Instruments: EUR/USD
Indicators: 11-period RSI
Timing: H4
Risk Management Rules: Fixed trading volume of 0,1 lot

Rules for a long entry

1. Wait for a Bullish Engulfing Pattern to form. This is the reversal pattern that forms at the end of a downtrend. It consists of a small red candlestick and a large green candlestick that wraps around the red candlestick. The shadows of the small candle are short.

 

2. The candlestick pattern must be confirmed by the RSI indicator moving below the 40 level.
3. Open your position on the next candle after the pattern is confirmed.
4. You should close the long position when the RSI indicator crosses the 70 level to the upside.

In the image above, you can see an example of this strategy on the H1 time frame of the EUR/USD chart.
of the EUR/USD.

After the price formed a pattern known as a Bullish Engulfing pattern, we checked the RSI and it was moving below 40. We opened a long trade at the opening price of the next bullish candle after the pattern at 1.12939. We closed the trade when the RSI crossed the 70 level at 1.1340. We gained 461 points.

Rules for a short entry

1. Wait for a Bearish Engulfing Pattern to form. It consists of a small green candlestick followed by a
followed by a large red candlestick.

 

2. The candlestick pattern should be confirmed by the RSI indicator which should be above the line
60.
3. After confirming the pattern, you must open a sell order on the next candle. This should
be bearish.
4. You should close the long position when the RSI indicator crosses the 30 level to the downside.

In the chart above, we opened a sell order after the RSI confirmed the Bearish Engulfing pattern moving above the 60 level at 1.1345. After the RSI entered the oversold zone, we closed our position at 1.1298. We gained 470 points.

Backtesting a strategy

The strategy was tested on a monthly and annual basis and yielded good results.

Let’s look at the profit factor. This metric shows how much money you make compared to how much money you lose. The one-year test of a $3,000 deposit and a leverage of 1:100 showed a profit factor of 1.40. The figure is greater than 1, so the strategy can be called reliable. Now let’s look at the payback factor. This is the absolute value of the net profit divided by the maximum drawdown. The recovery factor is 1.07, which is also greater than 1. In other words, the account recovers quickly from drawdowns. With our account size at $3,000, the maximum drawdown of 11% is considered normal.

Testing over a monthly period with the same parameters showed a profit factor of 2.06, but the recovery factor was 0.32. With our account size at $3,000, the maximum drawdown of 2% is considered normal.

Conclusion

Now you know a working strategy with a single oscillator and Japanese candlestick patterns – you should definitely try it!

Introduction

Trading requires managing several important things. A trader must choose which instruments to trade, which strategy to implement, how much to risk on a trade and how to manage this trade. Martingale and Anti-Martingale strategies focus on the size of a trade, which is, without exaggeration, the fundamental issue when it comes to stable profits.

What is the Martingale System?

The Martingale system (martingale) is a well-known method of betting. It was initially intended as a betting system. However, traders can apply it to financial markets. At the basic level, the idea of the Martingale betting strategy is to double the position size after each losing bet. It is necessary to continue this process during the sequence of losses until a winning bet appears and recoups all previous losses.

To further illustrate this idea, consider a game of chance such as roulette. Suppose you bet $100 on red. You will win $100 every time the ball lands on red. Similarly, you will lose $100 every time the ball lands on black. According to the Martingale system, when the outcome is positive, you must start over with a new bet of $100.

On the other hand, if the outcome is negative, you will lose $100. In this case, you will have to double your bet on the next spin, which is equivalent to $200. This process will continue for as long as it takes to achieve a positive outcome, which will recoup all the losses you incurred during the losing streak.

Does the Martingale Strategy work in trading?

Let’s adapt this Martingale money management for trading. Let’s say you are opening a position in the Forex market on the XAU/USD. Your trading strategy has a risk-to-reward ratio of 1:1 and you typically risk $200 per trade. In this case, each winning trade will give you a profit of $200, while each losing trade will cost you $200.

Each time you achieve a positive result, i.e. a winning trade worth $200, you must place $200 on the next trade. However, if your trade fails, you must double your lot size. If you lose on this trade, you must double your bet size again and risk $800 on the next trade and so on until you make a profit. A winning trade will recoup all the losses you incurred during the losing streak.

How to Use the Martingale Strategy Effectively?

This strategy is best suited to traders with large capital. Below you will see all the steps you need to follow to achieve a better result:

1.Choose the asset to be traded and a time frame.
2.Determine the basic size of the position.
3.Place your buy or sell order.
4.Set your fixed Stop Loss and Take Profit levels with a ratio of 1:2.
You win or lose when the Take Profit or Stop Loss is triggered.

If your trade reached Take Profit, go back to step three and open a new trade. If you lost, double your position and start again at step three.

You can immediately see the supposed attractiveness of the strategy, as it provides you with a predictable hypothetical outcome under specific conditions.

Secondly, with the Martingale strategy, you don’t have to try to predict price direction or market trends, as you are guaranteed a profit with every success.

What is the Anti-Martingale System?

The Anti-Martingale system is the reverse of the Martingale system described above. The strategy offers the trader to halve each bet after each losing bet and increase each bet by doubling it after each winning bet.

The Anti-Martingale system helps to increase overall profits during a winning streak and minimise losses during a losing streak. This strategy increases risk as the portfolio grows and decreases risk as the portfolio enters a drawdown phase. This strategy is much better to use in the financial markets than the Martingale system, as it is a logical money management model with a much more practical use for the trader.
trader.

Many trading strategies and systems within the Forex and Futures markets are based on some variation of the Anti-Martingale approach. Many swing trading and trend following models tend to be quite conservative in their position size allocation when the system has been experiencing losses. Conversely, when a trading system finds the right environment and profits by making a series of winning trades, it allows more risk to be taken.

Conclusion

Most experienced traders realise that one of the most important components to success in the market is a trader’s ability to manage risk. The Anti-Martingale system has built-in mechanisms to reduce the risk per trade and ultimately reduce the risk of ruining the trader’s account.

Vice versa, the Martingale system is a more aggressive and risky money management model. This is why a lot of precision is required when using this strategy.