Here I will take a simple system and apply it everyday to the Forex market. By following along, I hope that you'll be able to use this as a guide for following your own trading system each and every day. But before you follow along, here is a little background on the system that I will be trading. Actually this syetem has been widely spread over the internet but I want to tell you that it really works. The first system I used for trading is the following system.
The Main Trend Is Your Friend
The main concept of the theory is to catch small trends during the day while avoiding fakeouts. Simple right? Wrong! It's easier said than done. I will be making my trades off of a 15 minute chart, but I will be using a 4hr. chart to give me my main trend. If my 4hr. chart is trending up, then I will only be looking to go long on the 15 minute chart. On the other hand, if my 4hr. chart is trending down, then I will only be looking to go short on the 15 minute chart. By looking at the main trend first, I will have a better chance for a winning trade by moving along with the current market direction.
4hr. Chart Settings:
• 5 EMA applied to the close
• 10 EMA applied to the close
• Stochastics (10,3,3)
• RSI (9)
After establishing the main trend , it's time to look for trade entries on the 15 minute chart. The 15 minute chart looks similar to the 4hr. chart, except for the fact that I have added a MACD histogram. The trade entry rules are simple:
The 15 Minute Chart
• 5 EMA applied to the close
• 10 EMA applied to the close
• RSI (9) • Stochastics (10,3,3)
• MACD Histogram (12,26,9)
Long Signal:
• 5 EMA must cross above the 10 EMA (Indicated on chart by a black candle)
• RSI must be greater than 50
• Stochastics must be headed up and not in overbought territory
• MACD histogram must go from negative to positive OR be negative and start to increase value. (We want to catch trends early so the MACD histogram must be negative)
Short Signal:
• 5 EMA must cross below the 10 EMA (Indicated on chart bya purple candle)
• RSI must be less than 50
• Stochastics must be headed down and not in oversold territory
• MACD histogram must go from positive to negative OR be positiveand start to decrease in value. (We want to catch trends early so the MACD histogram must be positive)
Stop Losses
There is not a hard number that I use for a stop loss. Instead I use either the most recent swing low (for long trades) or the most recent swing high (for short trades) as my stop loss. Using the examples above, this is where I would place my stops:
In these examples, the stop losses were not that wide. However, there will be times when the most recent swing high or low is several pips away from your entry. This is where you must be careful. If the stop is too wide for you to keep within your money management rules, simply stay out of the market! Trust me, there will always be another trade later. Even if that trade happens to win a gazillion pips, you should never compromise or doubt your decision to follow strict money management.
