Trading strategy "Forex Smart"
The success of a trading strategy largely depends on the volatility of the currency pair.
Anyone who has tried to trade on small time frames has noticed that the price, before going in the direction we need, manages to turn around two or three times and at the same time break all the stops.
This is due to the high volatility of the asset, which, unfortunately, we cannot influence in any way.
The Forex Smart trading strategy suggests that we avoid such unexpected price jumps by trading on a four-hour chart.
It’s not for nothing that most pros trade on daily and four-hour charts, since on such time frames the volatility is much lower, and you won’t encounter any market noise like that.
In order to prepare the strategy for work, open the chart of the euro/dollar currency pair and plot the following indicators on the chart:
1. Linear weighted moving average with a period of 8. You should also apply it to the average price (HLC/3). Line color is blue.
2. Linear weighted moving average with a period of 21. You should also apply it to the average price (HLC/3). Line color is yellow.
3. Parabolic indicator with steps of 0.0026, and set the maximum to 0.5
4. Stochastic oscillator with period K 12, D12, and set the deceleration to 5.
5. MACD with a period of fast moving average 8, slow moving period 21 and MACD SMA 1. Apply the indicator to (HLCC/4)
Also, to make your work easier, I have prepared a template that you can download at the end of the article. Install it by pasting it into the Template folder, which you can access through the file/data directory tab of your terminal. After restarting, simply select the template called “Forex Smart” from the list of templates.
If you installed the template correctly, then after launching it all indicators will appear automatically, and the currency pair chart will look like this:
As you may have already noticed, the strategy is based on four standard indicators, a description of which you can read in the Indicators .
Now let's look at trading signals based on which we will enter one position or another.
A buy signal occurs when a number of conditions are met:
1. A moving average with a period of 8 crosses a moving average with a period of 21 from bottom to top (the blue line crosses the yellow line from bottom to top).
2. The Parabolic indicator point is located below the price.
3. The histogram of the MACD indicator is growing or is above level 0.
4. The stochastic oscillator line is growing, but is by no means in the overbought zone. Ideally, the indicator line is in the oversold zone.
I would like to especially emphasize that the intersection of moving averages, in our case, plays a more informative role, namely, it tells us about a change in trend direction. Therefore, the basis for concluding a buy transaction is the appearance of the Parabolic indicator point with a detailed signal filter for other indicators. You can see an example of a purchase entry in the picture below:
A sell signal occurs when a number of conditions are met:
1. A moving average with a period of 8 crosses a moving average with a period of 21 from top to bottom (the blue line crosses the yellow line from top to bottom).
2. The Parabolic indicator point is above the price.
3. The histogram of the MACD indicator is falling or is below level 0.
4. The stochastic oscillator line is falling, but is by no means in the oversold zone. Ideally, the indicator line is in the overbought zone.
We enter a position only on a closed bar. Note, if after crossing the parabolic had a different direction, but within five candles it changed direction as necessary for a sell signal, then you can safely enter the position. You can see an example of entering a sell position in the picture below:
The Stochastic indicator will help you exit correctly and not overextend your position. We exit the buy position if the oscillator line first crosses the level of 80 and then 60. You should exit the sell position if the Stochastic indicator line crosses the level of 20 and then 40.
Simply put, for buys, a closing signal appears when crossing level 60, and for sales, level 40. As an alternative, you can use the appearance of the Parabolic indicator point in the opposite direction. We will limit losses by setting stop orders near local minimums or maximums, important levels.
You can also place your stop above the moving averages or at the Parabolic indicator . In general, you have a wide range of options for exiting a position and setting stop orders. You can see an example in the picture below:
The strategy performs very well on trending currency pairs, but if you analyze the history of transactions, it turns out that the weak point of the strategy is the flat or the so-called saw in trading circles.
If you see that the price is in a clear sideways movement, you should pause trading and ignore the signal. Thanks for your attention, good luck! Download Forex Smart tools