Understanding the Correct Order Strategy
The Correct Order is a trading strategy that relies on the arrangement of moving averages. For a solid uptrend, you want to see the 10-period simple moving average (SMA) sitting above the 20-period SMA, which in turn should be above the 50-SMA. Then, the 50-SMA needs to be above the 100-SMA, and lastly, the 100-SMA should be above the 200-SMA. This alignment indicates a strong bullish trend.
What About Downtrends?
On the flip side, in a downtrend, the order is reversed. The moving averages will stack in the opposite direction, signaling a bearish market.
Why Use Moving Averages?
Having these moving averages lined up is a strong signal for trend direction and suggests that momentum is in favor of the prevailing trend. They also act as support levels during price corrections.
Adding the ADX for Reliability
To enhance the reliability of your entries, consider adding the Average Directional Index (ADX) to your strategy. Ideally, you want the ADX to be above 20 and trending upward. This indicates a strong trend is in play.
When to Enter and Exit
- Entry: After five candles have formed with the correct order in place.
- Exit: When the correct order is broken.
Testing Results
| Symbol | EURUSD (Euro vs US Dollar) | ||||
| Period | 1 Hour (H1) from 2008.06.04 23:00 to 2009.02.20 22:00 | ||||
| Model | Every tick (most accurate mode based on the shortest available time frames) | ||||
| Parameters | lots=0.1; stloss=100; magicnum=5000; | ||||
| Bars in test | 4451 | Ticks modelled | 2924368 | Modelling quality | 44.19% |
| Mismatched chart errors | 2 | ||||
| Initial deposit | £10,000.00 | ||||
| Net profit | £1,327.99 | Gross profit | £3,462.83 | Gross loss | -£2,134.84 |
| Profit factor | 1.62 | Expected payoff | £20.12 | ||
| Absolute drawdown | £128.73 | Maximum drawdown | £934.88 (7.70%) | Relative drawdown | 7.70% (£934.88) |
| Total trades | 66 | Short positions (won %) | 45 (42.22%) | Long positions (won %) | 21 (61.90%) |
| Profit trades (% of total) | 32 (48.48%) | Loss Trades (% of total) | 34 (51.52%) | ||
| Largest | profit trade | £470.06 | loss trade | -£304.00 | |
| Average | profit trade | £108.21 | loss trade | -£62.79 | |
| Maximum | consecutive wins (profit in money) | 5 (£717.85) | consecutive losses (loss in money) | 5 (-£338.41) | |
| Maximal | consecutive profit (count of wins) | £717.85 (5) | consecutive loss (count) | -£457.47 (2) | |
| Average | consecutive wins | 1 | consecutive losses | 2 | |
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