In this article, I am going to explain a simple but powerful trading system, as an example of how to combine a short term view, with a wider one. In order to do so, I will use a thirty minutes chart to find good entry points, and a wider time frame, that in this case will be four hours, to see the main tendency.

In order to have a more clear vision of this, we will be using some tools, such as trend lines in the four hours time frame chart, which will be very useful to set clear limits on when and where the tendency starts and ends. This is very important, because while the positions are open, it is very easy to fall in a deceptive spiral of wishful thinking and tolerance to losses, that invariably will lead us to undesired results. To avoid that, the use of a simple line will show us this limits, and will help us in the decision making process when we are inside the market.

Let’s see an example of this, for the EURUSD pair, in a four hours time frame chart of the current week:

We can see that, from the candle that actually ends the bullish tendency, until the start of the bearish one, there is a period of almost one week of uncertainty, in which, we will be systematically out of this pair, as a requirement to follow this system.

In the next chart we can see this “out of the pair” period, marked with a squared shape:

After this period of about one week, we can see the confirmation for the ending of the last bullish tendency, when the price, not only fail to reach a new high, but in fact is dropping below the last low. At this moment, we will switch to the thirty minutes chart, to wait either for a consolidation of the new tendency and a good entry point, or a reverse in the situation inviting us to wait longer.

Once the new tendency has been confirmed, we can switch to the thirty minutes chart:

Well, in this example, the new tendency is clearly confirmed. So, from that moment on, we will be waiting for an entry point, and as it is clearly shown in the chart above, we are supposed to open short positions, when in a confirmed bearish tendency, the RSI(14) reach the level of 70, shown in the chart above, with a pointed red line.

And as we can clearly see, the chart is showing us three very profitable entry points. The question, that I think arises at this point of the article is: where we should set the take profit. The answer to this question, will depend on several factors, but specially upon the personal view of the trader on the traded pair, but as a rule, I would say that at least should be the last minimum reached by the currency, since it crossed the trend line.

In summary:

  1. Look for a tendency in a four hours chart , using just a trend line.
  2. Once founded, switch to the thirty minutes chart, to see the tendency with a kind of magnified glass effect.
  3. Add to the thirty minutes chart, a RSI(14) with two levels: thirty and seventy.
  4. In a bullish tendency, open long positions when the RSI(14) reaches the level of thirty, or if the tendency is bearish, then open shorts when reaching the level of seventy.

Even when there is no doubt, that this is a quite simple system, nevertheless I believe, that might be also very robust. So, in order to test that, I will be trying it in the Trader contest, during the week lasting from twentieth to twenty fourth of the current month. And I will be giving feedback, by posting each movement on my blog, and sharing with everybody the results achieved by this simple system.
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