Linear Regression Channel Breakout Forex Trading Strategy

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Linear Regression Channel Breakout Forex Trading Strategy

If you have been trading the market for quite some time, you would notice that the market has ways of creating predictability. Either the market creates patterns or have a general trending direction.

These predictable conditions are where most traders make their money. Traders can develop consistency by trading within the limits of a predictable pattern. However, as soon as these predictable patterns are disrupted, the market usually reacts strongly. Other traders might find this disruption as a break from their usual profitable patterns. However, these conditions could also be a source of opportunity for traders who know how to navigate these scenarios.

One of the ways that the market creates predictability is through ranges. These ranges would have an upper boundary called the resistance line and a lower boundary called the support line. At times, these ranges are horizontal. In most cases, these ranges are formed by diagonal supports and resistances. Diagonal ranges are more popularly known as channels. These are markets that are either steadily rising or falling within a predictable boundary.

Linear Regression Breakout v1.1

Linear Regression Breakout v1.1 is a custom technical indicator which helps traders identify channels.

It basically plots a resistance line and a support line using a linear regression model. These support and resistance lines are plotted equidistant to each other creating a channel.

Channel traders could use this indicator to look for bounces off the support or resistance line, in the direction of the slope of the lines. However, these ranges are usually tight, allowing little space for price to move.

Breakout traders on the other hand could trade on breakouts from these channels, which tend to have a relatively higher income potential.

Trading Strategy

This trading strategy is a simple breakout strategy using the channels plotted by the Linear Regression Breakout v1.1 indicator.

Trades should be taken only when price breaks out towards the opposite direction of the trend. These scenarios are typically trend reversal conditions, which have more income potential compared to trading in the direction of the slope of the channel. It also avoids trading in an overextended price condition, which means there is lesser risk that the market might reverse prematurely.

Another scenario which might improve the probability of a win is by looking for flag patterns using the channel formed by the indicator. In these situations, the channel usually forms the body of the flag pattern. Breakouts from these channels tend to gain strong momentum.

Indicators:

  • LinRegressionBreakout_v1.1 (default setting)

Preferred Time Frames: 1-hour chart only

Currency Pairs: major and minor pairs

Trading Sessions: Tokyo, London and New York sessions

Buy Trade Setup

Entry

  • A channel that is sloping down should be observed on the chart.
  • Price should break above the resistance line.
  • The indicator should place an arrow pointing up indicating the breakout.
  • Enter a buy order on the confirmation of these conditions.

Stop Loss

  • Set the stop loss on the fractal below the entry candle.

Exit

  • Close the trade as soon as the indicator starts forming another channel.

Linear Regression Channel Breakout Forex Trading Strategy

Linear Regression Channel Breakout Forex Trading Strategy 2

Sell Trade Setup

Entry

  • A channel that is sloping up should be observed on the chart.
  • Price should break below the support line.
  • The indicator should place an arrow pointing down indicating the breakout.
  • Enter a sell order on the confirmation of these conditions.

Stop Loss

  • Set the stop loss on the fractal above the entry candle.

Exit

  • Close the trade as soon as the indicator starts forming another channel.

Linear Regression Channel Breakout Forex Trading Strategy 3

Linear Regression Channel Breakout Forex Trading Strategy 4

Conclusion

These are the kinds of trade setups that can help traders produce huge returns with a relatively high win rate. Flag patterns, breakout of channels and trend reversal trade setups are some of the highest yielding trade setups. Traders who have mastered trading these types of setups usually have consistent returns on their accounts and could multiply their accounts several fold in a short period.

However, trading these patterns is easier said than done. Many new traders find it difficult to identify channels and flags. Identifying breakouts and pulling the trigger at the right time can prove to be even more difficult.

This trading strategy simplifies things. It helps traders identify channels. In the right hands, traders could also identify flag patterns. It also pinpoints the breakout which helps traders identify when to trade.

The key to trading this strategy effectively is in combining your knowledge with flag patterns, trends, channels and waves. Some knowledge of Elliot Wave Theory would also be helpful. Then, trade these setups as you would normally do, but with the additional confirmation of the breakout signals.


Forex Trading Strategies Installation Instructions

Linear Regression Channel Breakout Forex Trading Strategy is a combination of Metatrader 4 (MT4) indicator(s) and template.

The essence of this forex strategy is to transform the accumulated history data and trading signals.

Linear Regression Channel Breakout Forex Trading Strategy provides an opportunity to detect various peculiarities and patterns in price dynamics which are invisible to the naked eye.

Based on this information, traders can assume further price movement and adjust this strategy accordingly.

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How to install Linear Regression Channel Breakout Forex Trading Strategy?

  • Download Linear Regression Channel Breakout Forex Trading Strategy.zip
  • *Copy mq4 and ex4 files to your Metatrader Directory / experts / indicators /
  • Copy tpl file (Template) to your Metatrader Directory / templates /
  • Start or restart your Metatrader Client
  • Select Chart and Timeframe where you want to test your forex strategy
  • Right click on your trading chart and hover on “Template”
  • Move right to select Linear Regression Channel Breakout Forex Trading Strategy
  • You will see Linear Regression Channel Breakout Forex Trading Strategy is available on your Chart

*Note: Not all forex strategies come with mq4/ex4 files. Some templates are already integrated with the MT4 Indicators from the MetaTrader Platform.

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