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This trading strategy combines trend analysis and market oscillation to identify optimal trading opportunities. It is tailored for trading the EURUSD currency pair. It is designed for short term trading and it is therefore suited for day traders.

Features

The Atlantic strategy is based on two indicators; the Bollinger bands indicator and the Relative Strength Index (RSI). The Bollinger bands indicator is a trend following indicator while the Relative strength index (RSI) is an oscillation indicator.

Indicator Description

The Bollinger Bands measure and indicate the volatility of the market and also show the direction of the market trend. When the market is in consolidation, the band is narrow while when the market is active, the band expands. The band is formed by three lines; two outer lines and a center line. The center line is more of a moving average and it indicates the trend. The market price tends to oscillate between the two outer lines; therefore, if the price hits one of the outer lines/bands, it is expected to bounce back towards the center line. If the price crosses the center line, then it is expected to hit the other outer line. But if it doesn’t cross the center line, the price bounces back to the outer line where it came from. The Atlantic strategy has been set to use Bollinger bands of a period of 45.


RSI indicator measures the momentum of a price change in the market so as to identify oversold and overbought conditions. It is an oscillating indicator that normally is set to oscillate between two extremes; 70 on the upper side and 30 on the lower side. Traditionally, 70 indicates overbought condition while 30 indicates the oversold condition. However, these settings can be adjusted according to the individual trader’s preferences.


In general, the overbought condition occurs when the demand for one currency sends the value of the currency pair higher than what the asset is generally valued at. On the other hand, the oversold condition occurs when there is a sudden rise in the number of sellers who consequently send the value of a currency market lower than what the value is generally supposed to be valued at. When a currency pair becomes overbought or overvalued, then the market price often readjusts by dropping and thereby going back to the fundamental value of the currency pair. Similarly, if a currency pair is oversold or undervalued, the market price often readjusts by rising back towards the currency pair’s fundamental value.









A strategy like Atlantic is most likely to be successful when the market is in a strong bullish or bearish trend. When the market is in consolidation, the strategy is not expected to be profitable.



Entry & Exit

A buy signal is generated when the price hits the lower band in the Bollinger Bands chart, since the market is expected to bounce back towards the center line. In addition RSI must be less than 35. Long positions are closed when the price hits the center line/band and RSI is greater than 45.

A sell signal is generated when the price hit the upper band since the market is expected to bounce back towards the center line. In addition, RSI must be higher than 65. Short positions are closed when the price hits the center line/band and RIS is less than 50.


 



Risk Management


To protect the trader from blowing his or her account, the Atlantic Strategy employs some risk management strategies like stop-loss and take-profit. Apart from having a closing formula, the strategy has a set stop loss of 19.5 pips in case the market doesn’t behave in the anticipated manner.Also, a long position can only stay open for a maximum of 290 minutes while a sell position can only stay open for a maximum of 275 minutes. This is why this strategy best fits short term traders.Lastly, the Atlantic strategy can only open a maximum of one trade at a time.


Profitable tick-based backtest

The backtesting results show that after around 330 trades the strategy could have returned around a 50 % profit. 


Tradeworks Algo Trading - Atlantic