Tuesday, March 8

Forex Trading Strategy 3

Forex Trading Strategy 3

Conditions required
1) Stochastic Oscillator (14,3,3 or 5,3,3)
2) Envelopes (14,0, 0.10 deviation)
3) Heiken Ashi

This has been a rather reliable indicator for
entering and exiting trades.

Here are the explanations;

1) Stochastic Oscillator

This is an indicator where it reflects whether a currency pair is over bought or over sold. Generally when the line reaches the upper section of 80, it indicates an overbought condition, on the other hand, if it reaches the lower section of 20, it indicates an oversold condition.

2) Envelopes

Envelopes are indicated in the below chart by 2 yellowish lines across. It indicates the trend of the currency pair. This is an additional indicator i look at before entering a trade. Any bar in between the envelopes i will not trade. I will only trade if the bar is either above or below it.

3) Heiken Ashi

Heiken Ashi is represented by the white sticks and red sticks as shown in the below chart. It can be used on its own or with candlesticks. Although it is a delayed signal, it is easier to understand and predict the direction. As it is delayed, it filters out unnecessary wrong signals as well. Generally speaking, the white sticks indicate uptrend and the red sticks indicate down trend.

Based on the above chart, I can enter a buy trade upon the 2nd white Heiken Ashi bar as it coincides with the uptrend on the stochastic oscillator and price is also outside the envelope. I exit the trade with 30 pips profit.

A sell trade chance arises a little further down the time frame but i would probably not take as this is an uptrend based on the bigger time frames.

However, looking back, if i had entered a sell trade upon seeing the red Heiken Ashi bar, i would have taken another 30 pips profit. But you never know what the market can do to you. For me, it's better safe than sorry.

Putting it altogether, always trade with the trend. I look at the H4 and D1 chart to see the direction of the trend before entering a trade. Unless you are one who likes to take high risk, when  in doubt, skip the trade and wait for the next one.

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