You now understand the fundamentals of technical analysis. Let’s now put all this information together and construct a straightforward trading strategy.
You should now have a better concept of what to look for when creating your own forex trading method.
Moving averages are used in this moving average crossover strategy to decide whether to go long or short.
Before making a trade, additional technical indicators are also employed for confirmation.
You’ll learn how to set up precise “crystal clear” entry and exit levels using these distinct technical indicators.
The trading system can be built in 3 simple steps:
- Define your time frame
- Determine your entry trigger(s)
- Determine your exit trigger(s)
Trading Setup
- Trade on daily chart (swing trading)
- 5 SMA applied to the close
- 10 SMA applied to the close
- Stochastic (14,3,3)
- RSI (9)
Trading Rules
Entry Rules
Enter LONG if:
- The 5 SMA crosses above the 10 SMA and both Stochastic lines are heading up (do not enter if the Stochastic lines are already in the overbought territory)
- RSI is greater than 50
Enter SHORT if:
- The 5 SMA crosses below the 10 SMA and both Stochastic lines are heading down AND (do not enter if the Stochastic lines are already in oversold territory)
- RSI is less than 50
Exit Rules
- Exit when the 5 SMA crosses the 10 SMA in the opposite direction of your trade OR if RSI crosses back to 50
- Exit when trade hits stop loss of 100 pips