FOREX STRATEGY: I want to talk about what I believe is the best way to trade, now this is going to be a style of trading a sort of strategy with multiple roles that need to be followed now this way of trading in my opinion is the best and most consistent way for most manual traders to go about doing their trading.
I have found this to be the easiest way to trade the most consistent and easiest way to stay. profitable in the long run so let’s talk about it what this strategy is and what does entails there are multiple parts so bear with me we are going to get through it one by one first.
Strategy:
The strategy of all we need to decide what our goal is when trading that way we can devise a plan that puts us in that position as best possible so when we are looking at this chart when do we want to be entering into a short position well all of these peaks would be the absolute ideal time to enter into a short position and in an uptrend, of course, you want to enter into a long position at the bottom of all of the dips expecting a continuation move with the current trend.
Now we have a goal it’s to enter in at the tops of pullbacks in a downtrend and buy at the dips and the low of the dip in an uptrend so how can we accomplish this how can we formulate a strategy that puts us in that position as best as possible
Well, first of all, we’re going to need to know what the trend direction is and this one is a very simple part of this strategy all you need is a 200-period exponential moving average which is a time-tested method of filtering the trend so what that means is when price is below the 200 period exponential moving average you only look to short pullbacks and when prices over the 200 period exponential moving average only look to long the dips
Now let’s talk about how we know when to enter into that short on a pullback or when do we know when to buy on that dip how do we know that the dip is done how do we know if the pullback is done and the trend is ready to continue so let’s talk about a few more rules that we can add in to help put us in the right position now this next part has multiple layers to it so let’s start with one of the rules that will keep you from entering when price is too extended to the downside or the upside depending on the trend direction
Because we don’t want to be entering into a short position right at the bottom here before a pullback we want to be entering in at a discounted price so how do we ensure that we’re entering in at a discount so that we don’t get caught on these bottoms right before pullbacks and get stopped out right before the trend continues in our favor well I suggest using some exponential moving averages such as the 20 periods exponential moving average in blue and the 50 periods exponential moving average in yellow.
The rule here is you’re not allowed to enter in until the price has pulled back to at least the 20-period exponential moving average this ensures that you’re not entering when the price is extended off of the EMAS because when it is extended it’s likely already gone too far for you to enter and you’re going to have to wait for the next pullback so having a rule that tells you that keeps you from entering when price is to extend it to the downside and a downtrend or to extend it to the upside in an uptrend.
Rules:
FOR LOWER TREND
Rules to the exponential moving averages is only the first layer to this part of the strategy making sure you’re not entering in when price is too extended making sure you’re getting into the trend at a discounted price but you don’t want to enter blindly just because price pulls back into the exponential moving average we have to add some more layers to this so what i suggest is something like a stochastic RSI.
Where we can also make sure that our indicator has fully reset so that price is more likely ready to continue and fully reset means that it has come all the way back into the over bought territory when price is in a downtrend and an indicator is overbought that is often a good time to be getting in so not only has price pulled back to our exponential moving averages giving us a discount but price has also caused the indicator to fully reset into its overbought territory another thing that.
We can talk about here is looking for things like hidden divergence hidden divergence is where price is making a lower high but at the same time an indicator makes a higher high an instance of hidden divergence can be seen right here we can see on this pullback the stochastic RSI comes up to here but then on this pullback stochastic RSI has actually come up.
FOR HIGHER TREND:
higher and already fully reset into the overbought territory but price is making a lower high so we can talk about hidden divergence and waiting for our indicator to fully reset into the overbought territory if it’s a downtrend or the oversold territory if it prices in an uptrend of course so this is just another layer that we can add in as confirmation that price has potentially pulled back enough that it’s ready to continue so that we’re not entering into the trend too early and potentially getting stopped out of course you will get stopped out On some of your trades it’s just natural as part of the trade any trading strategy but what we want to do is best do the best we can to enter in at a discount and this is only the next layer but we have another layer to get into here with making sure the trend is ready to continue and the price is pulled back enough.