Try This Simple Forex Strategy...
It's a Great Starting Point
The simple Forex strategy outlined below
is a medium term (1 or more days) one that
should work for you, or at least provide a
solid foundation for you to build your own
strategy upon. Medium term is the most
suitable for the average Forex trader, as it
requires the least amount of capital.
Even though this is a simple Forex strategy,
you should still do some homework. If you
don't know the basic support and resistance
levels you are up against, you are likely to
get in trouble.
The Entry
Firstly decide which pair you are going
to trade. Stick to a major pair and try to
stay away from the really volatile ones,
such as some of the Yen crosses.
Then determine the trend by adding an 8
period simple moving average (SMA) of the
closing price and an 8 period SMA of the
open price. You will see that when the trend
flips, these SMA's give you a clear
indication. If the lines seem tangled
together, the market is moving sideways and
you should stay out.
Then add an oscillator indicator such as the
Stochastic, with settings that compliment
the SMA"s from above. Try to use settings
of: %K =8, %D = 3 and slowing = 8.
Experiment a bit and see which ones work
best for you. Adding levels such as 20 and
80 to the Stochastic indicator also help
show you when it is getting close to an
extreme reading, which usually means a price
reversal is near.
The most reliable signals come from the
longer period charts.
The trade signal is a combination of the
crossing of the SMA's and also the crossing
of the Stochastic. This will give you a
reasonably safe entry point.
Get in, but risk no more than 3% of
your capital! Doing this will allow you
to place your stop far enough away from the
current price action, without a high risk to
your capital. I like to enter my trades so I
can take profit in two stages.
Lastly, place your "Stop Loss", but put it
far enough away from the entry price so you
won't be "stopped out" of a good trade.
The Exit
Place your "take profits" limit orders.
Try by setting the first to a fixed level
such as the average of the past 5 daily
ranges, and the second exit is with a
trailing stop to capture extra profits.
You always need to be aware of support or
resistance levels and trade accordingly.
Monitor the trade and once the price is a
safe distance from your stop, move the stop
ever closer to your entry price until your
profits are locked in. You may want to then
convert the stop to a trailing stop which
will follow the market.
Anything can happen in trading, and this
simple Forex strategy is not immune from any
of it. The "stop loss" will ensure that if
you happen to get hit by a bus, your
position can't get away on you. As long as
you are staying within the 3% guideline, the
price can move against you, even several
hundred points, without any real effect on
your account.
