Trading strategy: Mogalef Bands

Description

The Mogalef Bands were developed by French trader-author Eric Lefort. In his day trading Lefort focuses on important support and resistance levels. This has resulted in the Mogalef Bands trading strategy. The Mogalef Bands try to project the future trading range of a financial instrument.


  
Suitable for : Market indices (CAC, FTSE, DAX …)
Instruments : Futures and CFDs
Trading type : Day trading
Trading tempo : 1-3 signals per day
Using NanoTrader Full : Manual or semi-automated

 

The strategy in detail

The Mogalef Bands define the expected future trading range of a financial instrument. Hence imagine them projected forward as the most likely levels between which the market price will evolve.

The Mogalef Bands are determined by three lines calculated by Eric Lefort:

1. The center line: is the weighted level of the price activity. This is the theoretical centre of
the trading range.

2. The upper line: is the theoretical value of the highest price point in the range.

3. The lower line: is the theoretical value of the lowest price point in the range.

The upper and lower lines take into account the intrinsic volatility of the financial instrument.

The Mogalef Bands stay in place as long as the weighted value of the instrument stays between the upper and the lower bands. The bands can stay in place for a long time if an instrument’s volatility remains stable. If the volatility is high the bands can be large.

 

This example shows the Mogalef Bands on a 5-minute chart. Even in a low timeframe like this the bands can stay in place for a long time.


What would shift the Mogalef Bands? A price or even a close outside the bands will not shift the bands. It is the weighted value of the instrument as calculated by Eric Lefort which must move outside the bands i.e. the expected trading range. This must coincide with the close of the candle. A special scenario is an opening gap. An opening gap can also cause the bands to shift.

 

This example shows an opening gap which causes the Mogalef Bands to shift.


The trader using Mogalef Bands must open both a 5-minute and a 30-minute chart. The signals are generated by the 5-minute chart. The 30-minute chart supplies the trend filter. The trend filter is center line in the 30-minute chart calculated 80 periods back. The trend filter will color the chart background pale green when the trend is bullish and pale red when the trend is bearish. The trend filter blocks short sell signals in a bullish market and buy signals in a bearish market.

When to open a position?

A buy signal is given when the market price moves outside the lower Mogalef band without provoking a shift of the bands. A short sell signal is given when the market prices moves outside the upper Mogalef band without provoking a shift of the bands.

 

In this example a buy signal occurs when the market price moves outside the lower Mogalef band. Notice that at the time the chart background is pale green indicating that only buy signals are valid.


 

In this example a short sell signal occurs when the market price moves outside the upper Mogalef band. Notice that at the time the chart background is pale red indicating that only short sell signals are valid.


When to close a position?

The Mogalef strategy uses a stop and a profit target. The profit target is based on the 30-minute Mogalef bands. For a long position the profit target is the maximum between a fixed target and the upper band. For a short position the profit target is the minimum between a fixed target and the lower band.

 

In this example a short sell position reaches the profit target. The position is closed with a profit.


As regards the stop the author offers two alternatives.

Possibility 1: a fixed stop. The fixed stop is placed on the Mogalef Bands in the 30-minute chart. Within very large bands it can take a few steps of shifting before the position is stopped out. The loss is consequentially bigger in more volatile markets and less significant in calm markets. In his writings Eric Lefort specifies that traders not necessarily have to wait until the stop is hit. They can, were applicable, use some discretion and close the position when the Mogalef Bands already start to shift towards the fixed stop.

Possibility 2: a trailing stop. The trailing stop is placed right above or below the Mogalef Bands in the 30-minute chart. For example 2 ATR(14).

 

Conclusion

The Mogalef Bands is a day trading strategy developed by French trader-author Eric Lefort. By weighing prices and including volatility the strategy plots and projects crucial support and resistance levels as well as a centerline around which the market price oscillates. The objective is to go long during a weak moment in a bullish trend and to go short during a strong moment in a bearish trend. Hence the strategy can be labeled as a trend continuation strategy. Finally, it is worth mentioning that the author, even if the strategy is clearly defined, always leaves himself room to act on a discretionary basis. The strategy guides the trader, but the trader may also override the strategy based on his experience.

Practical implementation

In NanoTrader Full follow these steps:
  • Choose the instrument you wish to trade.

  • Open a chart with the template study "WHS EL Mogalef".

  • Semi-automated trading? Simply activate the TradeGuard+AutoOrder or the AutoOrder function.