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Hello everyone, I want to share with you my "Neutral Zone" system. I have been testing it with good results for a year, especially in marked trends. The basic idea is to detect areas of lateral consolidation within a strong trend and operate the ruptures with strict risk management. I only use price action, volume and a simple volatility filter (ATR 14
It seems too simple to be consistent. Have you tried different assets or only applied it in forex?
I apply it mainly in forex: EUR/USD, GBP/USD, USD/JPY and AUD/USD. It also works well in some indices such as the DAX or SP500. The key is the quality of the range, not the instrument.
The problem is that ranges are often traps. They break you to one side and turn on the other. How do you filter the fake breaks?
Very good question. I use two filters: I only operate ruptures with volume above the average of the last 20 candles. If the ATR is too low, I discard the break because it usually indicates lack of interest. This greatly reduces false entries, although some always there.
Doesn't sound bad. Do you use any specific hours to operate? Asian session breakups are usually pretty loose.
Exactly. I prefer to operate only the ruptures that occur during the European and American opening. In Asia only possible setups and frames.
Your system reminds me a lot of classic breakout strategies. What makes it different? Just the volume filter?
The difference is in patience to select the right range. Most enter the first breakout you see. Here I expect clear consolidations, with at least 20 side candles, without inclination. The previous structure is also key.
Sounds nice about the paper, but I want to see real statistics. Do you have serious backtest or forward test, or is it just "I'm doing well"?
I have manual backtest in the last 14 months with a 62% success rate and an average benefit/risk ratio of 1.9:1. Forward in real account for 5 months with +12%. It is not panacea, but it is stable.
I congratulate you if you really do, few show numbers. What do you do if you come in and just then you go back to rank?
I do not move the SL. If the break fails, I prefer to go out with the controlled loss. The worst thing is to adjust SL to the whim. In any case, if I see a clear rejection and false breakout, sometimes I enter in the opposite direction with the same criterion.
I do like that, taking advantage of the traps in your favor. How much average time do you hold the positions?
Most trades last between 4 and 12 hours. Some can be extended for a full day if the movement is accelerated after the breakup. That�s why active tracking is key, although I try to automate alerts so as not to be attached to the screen.
Any recommendations to better detect those valid ranges? Because defining "clear consolidation" is the hardest thing.
Totally. I look at three things: Minimum and maximum practically flat for at least 20 candles. Small candles, no long fuses. Declining volume towards the center of the range. When these three factors coincide, the probability of a valid breakout is greater.
Very good explanation. Do you consider the correlation of pairs to decide whether to enter or not?
Yes, especially in forex. If I see correlations like EUR/USD and GBP/USD showing similar ranges, it gives me more confidence if both break in the same direction. It is not mandatory, but adds up.
What about the news? Mm-hmm. Didn't some breakup break you up with an unexpected tip?
That's why I always check the economic calendar. If there's important news in the next hour, I don't open new positions. I'd rather miss an opportunity than eat an absurd spy.
I think it's wise. Have you thought about scheduling an EA that automatically detects the areas?
Yeah, I'm on it, but scheduling visual detection of clean consolidations is not trivial, the human eye is still better at identifying certain patterns than algorithms, although automating alerts is already working.
I subscribe to the thread. I am very interested to see how you continue to tune the system. Thank you for sharing without smoke or magic promises.
One of the fundamental keys that has allowed me to consolidate the strategy "Neutral Zone" is the deep understanding of the price behavior within ranges. Ranges are not random zones where the market stops without reason; they are zones of accumulation or distribution. When the market moves later after a previous impulse, it is usually because the large participants are deciding whether to continue the trend or reverse it. This knowledge has allowed me to be much more selective when marking the valid ranges. The decreasing volume within the range is a critical signal. It indicates that the interest is falling, which usually precedes an expansion of volatility. But it is not enough to wait for the breakout: the exact time of entry is key. I do not enter the first tick outside the range, I expect a clear closure above or below the marked area, with increasing volume confirmation. This eliminates many of the false breaks that usually frustrate the traders breakout. Another relevant aspect is the management of the position once in the trade. Many times the price breaks and makes a small pullback before continuing.
Thanks for the detailed explanation, I now better understand the weight you give to the volume within the range.
I don't know if I agree.Forex volume is unreliable, as it's decentralized. Don't you think you're overvaluing such questionable data?
Very good remark about patience. It is the Achilles heel of most traders.
I have one question: how do you visually define that the volume is "high enough" in the rupture? Do you use any moving mean of the volume?
Excellent contribution to the macro context. That's where many of us fail to operate blind to the general picture.
Thank you for sharing your experience in such detail. This approach of waiting for the confirmed breakout seems very sensible to me.
But don't you think if you wait too long to confirm, sometimes the strong movement will have happened and you're late?
Excellent clarification about the importance of not forcing trades. You have reminded me how bad I am when I operate out of anxiety.
Very good note moving the SL dynamically. That flexibility is key to not getting out early.
Although it's not clear to me how you leak the fake breakouts when the price makes tidbits during the important news.
Fantastic explanation of the role of the macroeconomic context. Many times you lock yourself in the chart and forget the big picture.
It has opened my eyes on how to interpret it within the ranges.
However, in forex the volume is only from the broker or liquidity provider. Don't you think it's more reliable to rely on pure price stock?
Very true about emotional management. I have burned so many times for entering tight ranges for impatience.
Your method of entering after closing out of range and waiting for the pullback looks like a jewel to me. Thank you.