I am going to share with you one of the simplest trading strategies you could ever come across. This is based on the idea “KISS- Keep It Simple Stupid”. It doesn’t involve any fancy or complicated indicators nor does it involve any complex methodologies. After reading this you might wonder why it didn’t occur to you or if this really works. I assure you that if you follow this strategy exactly as explained here and also adhere to few basic rules and instructions, you will never have a losing week or a month (there could be few losing days once in a while). So if you are ready for it, here it goes-
Simple moving average 200 (for direction)
Simple moving average 10 (for entry)
Time frame- Any. Works on 5 min, hourly and daily charts. Day traders could use 5 min charts, Swing traders can use hourly charts and long term investor can use daily charts.
Item- It can be used for any currency pair, commodity, Indices or stocks.
Long Entry- When the price candle closes or is already above 200 day MA, then wait for price correction until price drops to 10 day MA, then when the candle closes above 10 day MA on the upside, the enter the trade. Stop loss would be when price closes below the 10 day MA.
Short Entry- When the price candle closes or is already below 200 day MA, then wait for price correction until price rises to 10 day MA, then when the candle closes below 10 day MA on the downside, the enter the trade. Stop loss would be when price closes above the 10 day MA.
Limit- Profit target would vary with each item. For day traders, I suggest profit target of 50% of daily Average Trading Range of that item for the last month.
Eg- If EUR/JPY (my favorite at the moment) has daily Average Trading Range of 120 for the last month, I would suggest profit target of 60 pips per day trade.
Profit targets for other items can be worked out in similar fashion. It would be a mistake to use same profit target levels for all currency pairs. In my opinion ever currency has a different personality. It means that the daily trading range, volatility, reaction to any news, etc is different for all currency pairs.
1. Follow the instructions for entry and exit exactly as above. Don’t second guess, or assume/presume anything.
2. Avoid entering the trade when the price is temporarily above /below 10 day MA, but the price candle hasn’t fully formed yet. Enter the trade only after the price candle closes above/below the 10 day MA.
3. Exit the trade immediately when the price candle closes above/below 10 day MA in the direction opposite to the trade. Don’t remain in the trade wishing it to turn in your favor.
4. Never ever trade in the opposite direction of the market. i.e. don’t buy when the price is below 200 day MA and sell when the price is above 200 day MA.
5. Take profits when limit is reached. Don’t be greedy and keep on increasing the target. Remember- A bird in hand is worth two in the bush.
1. For forex day traders, this strategy works best in the London session as there is maximum volatility. Around 3am-11am NY time would be best time.
2. As this strategy is based on purely technical analysis, I suggest you switch off your inputs from fundamental analysis and news. Don’t allow fundamental analysis to influence the trades. Remember- Price is always right. Whatever effect fundamental analysis or News has on the currency will always reflected in the price.
3. Don’t jump into the trades. Allow time for the set up to be formed. There will always be opportunities available.
4. Leverage is a silent Killer. Don’t use excessive leverage for trading. Even the best strategy in the world will not prevent you from wiping out your equity.
5. Remember- Only 5% of day traders make money consistently. And trading strategy is not the number one reason for this. Failure to implement the strategy fully and not following the rules and guidelines is the number one reason for losses of majority of day traders.
I am attaching herewith screen shots of charts showing the entry and exit signals for different currencies and for different time frames.
Fig 1- Euro-USD chart for 14Feb 2013 showing profit of 50+ pips
Fig 2- Euro-JPY 5min chart for 14Feb 2013 showing profit of 60+ pips
Fig 3- GBP-JPY 5min chart for 14Feb 2013 showing profit of 50+ pips
Fig 4- Euro-USD Hrly chart for from 22-31 Jan 2013 showing profit of 200+ pips
Fig 5- Euro-JPY Hrly chart for from 04-15 Jan 2013 showing profit of 300+ pips
Fig 6- GBP-JPY Hrly chart for from 09-15 Jan 2013 showing profit of 300+ pips
As seen from the screenshots, this system is not a Holy Grail of trading, as a matter of fact, there isn’t any Holy Grail of trading strategy anywhere. Every system has profitable and losing trades. But as seen above, in this strategy, the profit from the profitable trades is cumulatively greater than the losses from the losing trades.
As a guide, I have observed that there are at least 2-3 profitable day trades in any given week(50-60 pips per trade using 5 min chart), 2-3 profitable swing trades available in a month(200-300 pips per trade using 1 hour chart) and 1-2 profitable long term trades in any given year(around 1000 pips per trade using daily charts). Using sound money management plan you can achieve return of 50-100% per year on your equity.
Thanks for taking time out to read this article.
Hope I have been able to add a little bit to your knowledge and wish all of you Good Luck in your trading!