Update of current FX Trading Strategy (Tunnel Trading plus Bollinger Bands)

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I've recently made a small change in the way I am currently trading the FX market and thought I would pass it on to anyone who cares ;)

Many of you may already know what I have been doing recently which is to trade using a "tunnel" constructed of two EMAs. Those being a 144 and 169 EMA. Those two EMAs will form a "tunnel" on your chart and it seems to be pretty powerful support / resistance when/if it is encountered. On any time frame.. Along with the "tunnel" I have been using a 13 EMA as somewhat of a filter.. A price close above / below the 13 EMA can be considered bullish bearish when taking other indications into account such as current direction / trend as can be determined by the tunnel itself.

What I have done right now is sort of eliminate my independent 13 EMA and replaced it with a double Bollinger Band. I used to use 3 Bollinger Bands in the past but right now am using just two.. The first is standard setting of 2 standard deviations and the second is set to 3 standard deviations while the period for both is set at 13 (14 was default on my MT4 platform). This center line basically serves the same purpose as the 13 EMA as we will see in the chart.

I have been using this for scalping the m5 chart time frame recently though the theory holds for any and every time frame.

Generally speaking if the current price is above the "tunnel" then the current bias should be long, if current price is below the tunnel then current bias should be short. However I should point out that the trend is your friend ;)So you should really use larger time frames in your attempt to determine current direction for the pair you are trading. I normally use h4 and daily for this purpose. But for the most part if a pair is bullish the price will tend to be above the tunnel even on m5 time frame, and in fact, for the most part even on m1 time frame.

In the first chart (5 minute time frame) we will take a look at the EURCAD pair.. I hope the chart is self explanatory. Please let me know if it's too confusing ;) Not mentioned in the chart (I ran out of room lol) is the importance of the 13 EMA also.. Generally speaking price above = bullish / price below = bearish.

--- Here's the chart EURCAD 5 minute




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And next we'll look at a 5 minute GBPUSD chart from today (03/22/2011) and you will quickly see that it was stuck in a range all day long.. So the object here would have been to trade the range both up and down until it broke out in one direction or the other.

There are quite a few possible trades here.. i don't know that you could get rich but there isn't anything at all wrong with grabbing 12-15 / 20 pips multiple times during the day ;)

--- GBPUSD ranging 5 minute chart




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Hope you enjoyed this post and as I mentioned these techniques should work just as well on larger time frames though your risk reward will increase with the size of the time frame.

Happy pipping everyone!

Greg