Strategy Based On Moving Averages, Stochastics And RSI

 

Strategy Based On Moving Averages, Stochastics  And RSI

To begin, we have determined that this is a swing trading method and that we will use a daily chart to trade.

Following that, we use simple moving averages to assist us in identifying a new trend as soon as appropriate.

The Stochastic indicator assists us in determining if it is still safe to initiate a trade after a moving average crossing, as well as in avoiding oversold and overbought zones.

The RSI provides further validation and assists us in determining the strength of our trend.

After determining our trading arrangement, we calculated the risk associated with each transaction.

We are prepared to risk 100 pips on each trade using this technique.

Generally, the bigger the time period, the more pips you should risk, since your winnings will normally be greater than if you trade on a lower time frame.

Following that, we outline our entrance and exit procedures in detail.

At this point, the system testing would commence with manual back tests.

 For example: Open position on EUR/USD

 Example of a long trade setup:

If we did go back and glanced at this chart, we would notice that this would be an excellent opportunity to go long based on our system rules.

Also Read: Forex Trading Strategies Based on Momentum

Back testing entails writing down the price at which you would have entered, your stop loss, and your exit plan.

The chart would then be moved one candle at a time to examine how the trade unfolded.

 Moving Averages

In this situation, you would have made some good pips! After this trade, you might have got yourself something pleasant!

As you can see, when the moving averages crossed in the other direction, it was time to exit the trade.

Of course, not all of your transactions will be as appealing. Some may seem to be unfavourable, but remember to be disciplined and follow the principles of your trading strategy.

Example of a Trade: Sell EUR/USD

An example of a short entry order,  It is  easy technique.  

 Moving Averages,

Our conditions were matched since there was a moving average crossing, the Stochastic was indicating downward momentum but was not yet in oversold territory, and the RSI was less than 50.

We would enter short at this moment.

Now we would note our entry price, stop loss, and exit plan, and then advance the chart one candle at a time to observe what occurs.

moving average crossover

As it turned out, the trend was rather powerful, and the pair fell about 650 pips before another crossing occurred!

Also Read: How To Identify a Trend Reversal

We understand that you may believe that this strategy is too easy to be rewarding. The fact is that it is rather straightforward. You should not be afraid of something so basic.

In fact, there is an acronym known as KISS that is often used in the trading sector.

It is an acronym that stands for Keep It Simple, Stupid!

It essentially indicates that forex trading methods do not have to be complex.

You do not need a plethora of indicators on your chart. Keeping things simple can actually give you less of a headache.

The most crucial factor is self-discipline. We cannot emphasize this enough. We can, after all.

If you have extensively evaluated your forex method via back testing and live trading on a DEMO account for at least a month (or two).

Then you should have the confidence to know that if you stick to your guidelines, you will be lucrative in the long term.

Believe in your system and in yourself!