It’s been a while since I’ve been able to look out my window and see snow. My little corner of the world just had a big snowstorm, and now it is a veritable winter wonderland, getting me more quickly into the spirit of Christmas. Of course the bad side of all this is that it’s flipping cold here! I’ll be traveling back home to sunny Arizona in 11 days, away from this freezing frozen stuff! And I can’t wait! But enough of that, let’s talk Forex strategies!
Here’s a simple strategy that I have been using recently and wanted to share as I been trying that my trading to strategies that work with longer time frames (four hour to one day charts), and only requires a few minutes of reading a chart each day. We will be using a daily chart, 5 EMA and RSI indicators. Take a look at the EUR/USD chart below:
The red line is the 5 EMA, and the bottom of the chart is the RSI indicator, with white line levels at, going from bottom to top, 25, 50, and 75. The rules of the strategy are very easy: look for a candle that crosses and closes above or below the 5 EMA (red line). For a buy trade, were looking for a candle to cross and close at least 10 pips above 5 EMA with the RSI above the 50 line. For a sell trade, were looking for a candle to cross below and close 10 pips below the five EMA with the RSI below the 50 line. Look at the buy trade signal indicated by the yellow arrow. The candle crossed the five EMA and closed over 20 pips above it with the RSI crossing the 50 line. If we entered a long position at the opening of the next candle, we would have experienced initially a 21 Pip drawdown, followed by a 35 Pip gain, and closing +15 pips. Now here’s where patience can pay off. Since the RSI remained above 50 (and continued to go up), if we stayed in the trade for three days we would have gained +150 pips. Not too shabby a return for a few minutes of charting over a couple of days.
Now let’s look at the short position signaled by the candle indicated by the blue arrow. It crossed the five EMA and close 95 pips below, with the RSI well below 50, signaling a short position. If we entered a position at the opening of the next candle, we would’ve gained 35 pips when the candle closed. Now you’ll notice something similar to the previous example – with the RSI well below the 50 line, we could have stayed in the trade longer and netted around 80 pips nine days later, but that would be a tough trade to wait out. Quite frankly, I’m not that patient. I usually like to take my profit after one candle and wait for the next trade. Let’s look at another example:
Look at the signal indicated by the green arrow. Our candle closed around 20 pips below the five EMA line, with the RS I below the 50 line. If we entered a short (sell) position at the open of the next candle, 24 hours later we would have gained +35 pips. The white arrow shows a candle signaling a long (buy) position, closing 26 pips above the five EMA, with the RSI well above 50. Now this trade would have required patience, for if we entered at the opening of the next candle, our gain would’ve been almost naught. In spite of that, the RSI move strongly upwards towards the 75 line, suggesting we stay in the trade – which, in this case would’ve been very profitable as the next candle gained +59 pips and the following candle gained +121 pips! Again, not too shabby for a few minutes worth of effort coupled with a lot of patience.
So if you been yearning to test the waters of trading on a daily chart, this strategy can be a fun and easy way of doing just that. Experimenting with Forex trading for me personally can be rewarding, but Forex trading can also be, and often is, extremely frustrating. Markets just don’t do what we want them to do, and you have to learn to deal with its behavior which is often not logical and frequently not as predictable as we would like it to be. Dealing with this can be hard, especially for beginners who are too often easily discouraged from continuing their trading activities after the market moves against them. If you are new to Forex and perhaps struggling with learning how to read charts or place trades or learning how to use expert advisors, then consider joining a trading group like the Slick Trade Academy. As a member, you’ll have access to some great educational materials, but also trade signals, expert advisors (trading robots), and help from other members. So if you been thinking about joining Slick Trade, why not take the plunge? I think you’ll be happy that you did!
That’s all for this week, I’ll be back next week with some more goodies, and until then, good luck in the markets and happy trading! JC