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RichardCox

The Blade Runner Strategy

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The Blade Runner Strategy

 

Many traders on this forum are likely fans of the sci-fi classic BladeRunner, Ridley Scott’s dystopian depiction of future world increasingly dominated by artificial intelligence. So, it might come as little surprise that there is a forex technical analysis strategy boasting the same name. The strategy relies heavily on the position of market prices relative to the historical averages. It could be argued that the majority of technical analysis strategies start with a basis that is vaguely similar. But variations on the Blade Runner strategy that employ the use of the forex polarity indicator offer a somewhat unique approach to moving averages. Here, we will look at some of the factors involved when forex traders place trades using the Blade Runner method.

 

Basic Concepts

 

Trading signals generated by the Blade Runner strategy are based on pure price action. Off-chart indicators are not needed, but can always be added as a source of added confirmation. Instead, most of the focus is placed on price activity itself, which means that the use of support and resistance levels, pivot points, and candlestick formations might prove beneficial when looking for new opportunities.

 

In most cases, the Blade Runner Strategy uses a 20-period exponential moving average (EMA) or the middle line of the 20-period Bollinger Band. Time frames can vary, but many traders argue that the strategy is better-suited to short-term charts as it provides signals for quick entries and exits. The term “Blade Runner” is used because the EMA (or Bollinger Band middle line) cuts through price activity and provides a reference point for the trading signals that are sent.

 

Trading Signals

 

The trading signals that are sent using this strategy are sent when prices convincingly trade above or below the EMA, and then test the EMA on more than one occasion. Below, we will look at two examples in the bullish and bearish directions. First, we will look at a bullish example using a daily chart in the EUR/USD:

 

53jz92.png

 

Here, we can see that prices have tested the 20-period EMA on five separate occasions before stalling out toward the right of the chart. Bears are not successful in convincingly driving prices below the 20-period EMA. This sets the stage for further rallies later, once markets consolidate and correct themselves in-line with the longer-term trajectory. Once a signal like this is spotted, it becomes increasingly likely that prices will reject to the topside, once the period of sideways consolidation (found at the right section of the chart) has completed.

 

In the next EUR/USD chart, we can see how this scenario might unfold:

 

xfsowj.png

 

Here, we can see that the initial rally then encounters its periods of corrective consolidation. This period gives the market the energy it needs to propel itself further once the averages have corrected. Long positions could have been taken in this scenario, and carried for profits until the final candles on the chart, which is where prices convincingly break in the bearish direction.

 

Rules for the Bullish Entry:

 

  • Price activity moves convincingly above the 20-period EMA
  • Prices test the EMA from above on multiple occasions
  • Prices enter a period of consolidation
  • Prices then finally break back convincingly above the EMA
  • Trades are closed once prices convincingly fall below the EMA

 

Bearish Example

 

Next, we will look at a bearish example using a daily chart in the USD/JPY:

 

15mejd3.png

 

In this scenario, we have a somewhat more volatile example that shows signals in the bearish direction. We can see that prices have tested the 20-period EMA from below on four separate occasions before stalling out toward the right of the chart. Bulls are not successful in convincingly driving prices above the 20-period EMA. This sets the stage for further declines later, once markets consolidate and correct themselves in-line with the longer-term trajectory. Here, it becomes increasingly likely that prices will reject to the downside, once the period of sideways consolidation (found at the right section of the chart) has completed.

 

In the next USD/JPY chart, we can see how this scenario might unfold:

 

35i6eed.png

 

Here, we can see that the initial decline later encounters its periods of corrective consolidation. This gives the market the energy it needs to propel itself further once the averages have corrected. Short positions could have been taken in this scenario, and carried for profits until the final candles on the chart, which is where prices convincingly break in the bullish direction.

 

Rules for the Bearish Entry:

 

  • Price activity moves convincingly below the 20-period EMA
  • Prices test the EMA from below on multiple occasions
  • Prices enter a period of consolidation
  • Prices then finally break back convincingly below the EMA
  • Trades are closed once prices convincingly rise above the EMA

Of course, there are variations on these rules -- as there are with any forex technical analysis strategy. Next, we will look at one of these variations. Specifically, we will look at the ways trades can be constructed when we add the Forex polarity study.

 

Adding the Forex Polarity Study

 

Some traders are reluctant to try any strategy that employs a single trading signal. There is good reason for this, so next we will look at some of the ways traders can add Bollinger Band readings in order to gain added confirmation. This is also referred to as using the Forex Polarity study, which juxtaposes the 20-period EMA along with the middle line in the 2-deviation Bollinger Band.

 

Here, we will look at a bullish example of this combination using a daily chart in the GBP/USD:

 

rmtr1u.png

 

In this chart, we can see that the GBP/USD encounters a period of consolidation toward the left side of the chart The 20-period EMA and the middle like of the 2-deviation Bollinger Band are then viewed in combination. Once prices forcefully rise above this combined signal, we have a scenario that lends itself to bullish trades and long positions for the currency pair in question.

 

This chart might appear complicated and difficult to understand at first glance. There are Metatrader indicators that plot the 20-period EMA and the middle line of the 2-deviation Bollinger Band, and this can make the entire structure easier to understand and assess at first glance. But we have plotted all relevant indicators together here for better frame of reference and understand how all of these indicators work in combination with one another.

 

When a bullish signal like the one shown in the chart above becomes apparent, it becomes more likely that markets will experience additional upside in the trading periods ahead. This combined signal might be viewed as more valid, given the combined nature of the indicators involved. Most traders prefer not to use any trading signal in isolation, and many of these difficulties can be solved when using the Forex Polarity study as opposed to the 20-period EMA by itself.

 

Conclusion: The Forex Blade Runner Strategy Offers a New Spin on the Traditional Moving Average Strategy

 

In all of these ways, forex traders can use the Blade Runner strategy as a means for offering a unique take on the traditional moving average strategy. There are rules in place for the bullish and bearish versions of this strategy, and each of these steps should be honored before any real-time trades are placed. Most technical analysis strategies employ moving averages in some shape or fashion. But when we look at the rules established for the Blade Runner approach, alternative variations (and trading signals) can be identified.

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