rfxsignals April 3, 2020 No Comments

Trend Trading with the ADX and the Parabolic SAR

This strategy is designed to profit on joining already existing trends in the market and rests on two indicators developed by Welles Wilder – a great technical market analyst and inventor of technical indicators.

The indicators we will use for this strategy are the 14-period ADX and the Parabolic SAR, both widely popular and extensively used in trading the markets.

Trend Trading with the ADX and the Parabolic SAR

The ADX is a unique indicator that shows the characteristics of a particular trend. The ADX tells us when there is a trend and also when there is no trend, so we know when to use a trend following strategy and when to use a range trading strategy.

For this trend-following strategy, we’ll look for the ADX to signal trending market conditions.

First, it’s important to understand how the ADX works. The ADX line only shows how much the market is trending at the moment, regardless of direction. So whether it’s a bearish or bullish trend the ADX line will go up if the trend steepens. An ADX value of 25 or greater indicates trending markets while an ADX reading of 20 or below indicates ranging markets.

Now, the ADX has two other lines in addition to the ADX line, the +DI line and the –DI line. It is these lines of the ADX indicator that show the direction of the trend. When the +DI line is above the –DI line the trend is bullish and when the –Di line is above the +DI line the trend is bearish.

We’ll look at some examples below to show how all this works.

We will use the Parabolic SAR as the trigger signal alongside with the +DI and –DI lines to initiate new positions.

Of course, as with any trading strategy, it’s important to be aware of key support and resistance levels as well as any fundamental events that could affect the currency pair.

Entry rules:

Long:

  • ADX above 25
  • +DI line crosses above –DI line
  • Parabolic SAR reverses and gives a bullish signal

Short:

  • ADX above 25
  • +DI line crosses below –DI line
  • Parabolic SAR reverses and gives a bearish signal

As we can see on the 4-hour EURUSD chart, the ADX line (thick blue below the candles) tends to move above and below the 25 level (dotted gray).

We have marked the area on the chart where a signal occurred according to this strategy. The ADX was above 25, the +DI line crossed above –DI and the Parabolic SAR reversed at about the same time.

For a timely signal, it’s best for the crossover of the +DI and –DI lines to occur together with the reversal in the Parabolic SAR, with some 2 – 3 bars maximum lag between the two signals. Otherwise, the signal may be lagging behind price and it’s more likely that it will be too late for the trade.

An example of a long entry using Parabolic SAR and ADX forex trading strategy

Trend Trading with the ADX and the Parabolic SAR

An example of a long entry using this strategy

Initial Stop-Loss Placement:

We use the Parabolic SAR to place the stop at entry and also to trail the stop as the trade progresses.

An important support or resistance level can be used as a stop-loss if it doesn’t threaten the main conditions of the trade (as per the ADX).

​One of the great things about the ADX, and with it of this strategy, is that we can quickly reverse positions and make hefty profits in both directions as the market aggressively reverses and trends in the opposite direction.

On this 4-hour GBPJPY chart, we can see how we could have profited handsomely in both directions successively.

An example of a long followed by a short entry - ADX and Parabolic SAR Trading System

Trend Trading with the ADX and the Parabolic SAR

An example of a long followed by a short entry

Managing the Opened Trade:

As a rule, we stay in the trade for as long as the Parabolic trailing stop is not taken out. So even if the other conditions for the trade (the ADX line and the +DI and –DI positions) change for a brief time (2-3 bars) the trade should remain open.

However, if the ADX falls below 25, or the +DI and –DI lines reverse in the opposite direction and stay there for several trading sessions (4 – 5 bars or more) then there is no need to wait for the Parabolic trailing stop to be taken out, but rather it’s recommended to manually close the position even at breakeven or a small loss because trading conditions have now changed.

An example of such a case is shown on the following USDJPY 1 hour chart.

USDJPY 1h chart - ADX and Parabolic SAR Forex Trading System

Trend Trading with the ADX and the Parabolic SAR

Trend Trading with the ADX and the Parabolic SAR

USDJPY 1h chart
We can see how we initiated the trade on a reversal in the Parabolic SAR and the +DI line crossing above the –DI. However, immediately the next session +DI crossed back below –DI and stayed there for 2 sessions before crossing above again. However, the ADX kept declining and remained below 25 indicating there is no trend here anymore.

The right decision here was to exit the trade at breakeven or a small profit after the ADX stayed below 25 for 4 – 5 sessions.

This is a powerful trading strategy that works very well during strong market trends and can offer excellent rewards.

Most importantly, due to the accuracy of the indicators used and the conditions under which they are used, this strategy enables traders to enter only the best and strongest Forex trends out of which the best trading opportunities are filtered out and considered for taking a trade. It may not generate as many trades as other strategies, but trades which are generated are with a higher degree of accuracy.

It’s easy to implement and to use this strategy. It doesn’t require expert knowledge of the markets or extensive understanding of technical analysis principles. The strategy can be applied on all currency pairs with pretty much the same performance/results. It also works well on different timeframes, but the 4-hour chart has shown the most profitable results.

On the chart below, we show a real Forex example of how this strategy based on the FxTR Improved RSI indicator and two EMAs looks on the charts:

RSI Forex 4-hour Trading strategy

Best 4-hour RSI Forex Trend Trading Strategy

The entry is at the vertical line on the left, while the exit is at the vertical line on the right (yellow MA starts to slope upwards) – A short trade example that resulted in a profit of over 300 pips on the CHFJPY 4h chart

Indicators to be used:

Three indicators are needed to trade this strategy:

  • 30 period exponential moving average (yellow on the charts)
  • 60 period exponential moving average  (blue on the charts)
  • The FxTR improved RSI indicator (Download for free here) – Created by the Fx Trading Revolution Team, this RSI-based indicator is very effective in predicting longer-term trends

Trading conditions and rules of the strategy:

Long trade entry:

  • Wait for the 30 period moving average (yellow) to cross above the 60 period moving average (blue)
  • Ensure that both moving averages are sloping upwards
  • The 30 period moving average (yellow) is sloped at an angle of 20 degrees or higher – No exact measurement is necessary here, but a subjective estimate is good enough
  • Look for a blue arrow to appear on the RSI indicator after the 3 criterions for the moving averages are met
  • Once all of the above conditions are satisfied, a long trade can be taken

Long trade stop loss:

  • Place stop below the 60 period moving average (blue)
  • Trail the stop behind the 60 period moving average as the market ascends higher

Long trade exit:

  • Hold trade for as long as the RSI shows a blue (bullish) signal
  • Close the trade if the yellow moving average starts to slope down
  • Or if the RSI turns bearish (red)
Forex 4-hour swing trading strategy

Best 4-hour RSI Forex Trend Trading Strategy

A long trade generated on the GBPCAD 4-hour chart – The entry signal is shown with the vertical line on the left and the exit signal is shown with the vertical line on the right
Short trade entry:

  • Wait for the 30 period moving average (yellow) to cross below the 60 period moving average (blue)
  • Ensure that two moving averages are sloping down
  • The 30 period moving average (yellow) is sloped down at an angle of 20 degrees or steeper – No exact measurement is necessary here, but a subjective estimate is good enough
  • Look for a red arrow to appear on the RSI indicator after the 3 criterions for the moving averages are satisfied
  • Once all of the above conditions are fulfilled, a short trade can be taken

Short trade stop loss::

  • Place stop above the 60 period moving average (blue)
  • Trail the stop behind the 60 period moving average as the market descends lower

Short trade exit:

  • Hold trade for as long as the RSI shows a red (bearish) signal
  • Close the trade if the yellow moving average starts to slope upward
  • Or if the RSI turns bullish (blue)
RSI EMA swing trading strategy 4-hour

Best 4-hour RSI Forex Trend Trading Strategy

The sell signal is shown with the vertical line on the left and the exit signal is shown with the vertical line on the right – EURUSD 4-hour chart

Core principles to remember for this Forex trading strategy:

  • Trading signals from the RSI should be ignored if the conditions of the moving averages are not satisfied first. That is, for a bullish signal of the RSI to be valid the 30 period (yellow) MA should be above the 60 period (blue). For a sell signal from the RSI to be valid, the 30 period should be below the 60 period moving average. This significantly helps to filter out noise moves in the market and reduce whipsaw signals that will result in bad trades. Thus, the overall performance of the strategy and the final results are improved by a marked level just by using this specific combination of the indicators.
  • It is recommended to lock in some profits from time to time. It’s not always necessary to wait for an exit signal from the indicators to close a part of the position. Since this is a trend trading strategy, the exit signal generated by the RSI and moving averages will tend to eat into the profits to some degree. Using some leading indicators like Fibonacci retracements or support and resistance zones from higher (like the daily or weekly charts) can help you to lock in partial profits at key technical levels just in case if the market suddenly reverses. In this way, the trader still gets to keep some of the profits in such cases.
  • This strategy doesn’t use profit targets because it tries to capitalize on trends which can last for an undetermined time and distance on the charts. Hence, for a trending market environment, it’s usually better to just trail the stop behind the price instead of using fixed profit targets. Very often the profit targets are exceeded in trending markets so constantly using them can actually reduce the profits for the trader in the end.
rfxsignals April 3, 2020 No Comments

Double Bollinger Band, MACD, Stochastic Crossover Forex Strategy

rfxsignals April 3, 2020 No Comments

1-hour Bollinger Bands – CCI Forex Trading Strategy

The following strategy can be used on any of the intraday charts however it has shown the best results on the 1-hour timeframe and therefore it’s best to use it on the 1-hour chart. It is most suitable on the major Forex pairs, although there are no limitations regarding the Fx pairs it can be applied on.

This Bollinger Bands – CCI strategy is not a day-trading strategy, meaning trades can be held for as long as the conditions for the trade remain true regardless if that means holding the position overnight.

The main goal of the strategy is to profit on the acceleration of trends and their continuation in the direction of the trend in force.

Below is an example of how the strategy looks on the charts:

forex 1 hour trading strategy

1-hour Bollinger Bands – CCI Forex Trading Strategy

A long trade as generated by this strategy shown on the EURUSD 1-hour chart

Indicators to be used:

For this strategy, we’ll apply 2 main indicators which are necessary.

  • 1st Bollinger Bands with the custom settings as follows: period – 100 and a standard deviation of 3.
  • 2nd the FxTR Improved CCI (Download for free here) – developed by the Fx Trading Revolution team – this indicator accurately identifies trends and trend reversals.

Additionally, you can also place the Master MACD and the ADX indicators below the chart to help you determine the momentum of the trend. Weak momentum may be an indication that a potential trading opportunity is not good and the trade will not work out well.

While placing the Master MACD and the ADX are not a requirement for this strategy, they are often helpful as both of those are very useful indicators.  Avoiding trades where the ADX is below 25 will result in better trading signals and trades with a higher probability for success.

But, the reason for using these two indicators is only to aid the trader in reading the primary indicators and signals of this strategy which are the crossing of the middle line of the Bollinger Band and the CCI. So, just because the ADX not exactly at 25 doesn’t necessarily mean you should avoid taking the trade altogether if, for example, the other conditions look good.

For illustrating the strategy in this article, we have placed both the ADX and the Master MACD indicators.

Long trade entry:

  • Wait for price to cross above the 100 moving average of the Bollinger Band (that is the middle line of the indicator).
  • Wait for the CCI indicator to turn blue (bullish).
  • Initiate long trade.
  • Additionally, it is better if the ADX is above 25 and the Master MACD is showing a bullish trend.

Long trade stop loss:

  • Place stop behind the most recent low below the middle line of the Bollinger Band indicator (100 moving average).
  • Make sure the stop is smaller than the destination to your profit target (the upper band of the BB).

Long trade profit targets and exit rules:

  • Target the upper band of the Bollinger Band
  • Or exit when the CCI turns red (bearish)
An example of a long trade is shown on the chart below which resulted in a nice profit.
Bollinger CCI Forex trading strategy

1-hour Bollinger Bands – CCI Forex Trading Strategy

Buy signal indicated with the up arrow on the left and the exit signal shown with the down arrow on the right – USDJPY 1-hour chart
Short entry rule:

  • Price is below the middle line of the Bollinger Band.
  • The CCI indicator is bearish (red).
  • Enter a sell position.
  • In addition, look for the ADX to be above 25 and the Master MACD to show a bearish trend as verification of the trading signal.

Short trade Stop Loss:

  • Place the stop above the middle line of the Bollinger Band.
  • Make sure the potential trade comes with a good risk-reward ratio. The stop should be smaller than, or as large as the distance to the profit target (the lower band of the BB).

Short trade Profit targets and exit rules:

  • Target the lower band of the Bollinger Bands
  • Or exit when the CCI turns blue (bullish)

A short trade generated with this strategy is shown on the chart below.

Forex 1 hour strategy CCI Bollinger

1-hour Bollinger Bands – CCI Forex Trading Strategy

Sell signal (down arrow on the left) and the exit signal (up arrow on the right) – EURUSD 1-hour chart

General guidelines for the strategy

  • Aim for at least a 1-1 risk-reward or higher – This goes to managing risk properly. It is very important because many potential trading opportunities may look perfect by the setup but may not fulfill this crucial condition (an acceptable risk for the potential reward). Such trades should not be taken despite the bullish signals and the good-looking trade setup.
  • There is no need to exit when the CCI turns neutral as this can only be noise and then the indicator can just turn bullish again. The ADX and the Master MACD can, however, confirm that a change to neutral in the CCI is something more important and that a possible reversal is coming.
  • Avoid closing a trade on small fluctuations of the CCI if sufficient profit has not been achieved yet – This is where the ADX, the Master MACD and just reading the price action can help you in staying with a trade during sideways price action.
  • Obviously, paying attention to support and resistance on larger timeframes will be important when using this strategy as is in most cases when trading Forex. A strong resistance or support on the way to the profit target is a serious obstacle for achieving the target and, therefore, it’s better to avoid taking such trades.
rfxsignals April 3, 2020 No Comments

MACD Trend Forex Trading Strategy

The MACD is a technical indicator designed for trend trading the markets and as a result, there are many trend trading strategies based on the MACD indicator. In our strategy here, however, we will use a few other indicators in addition to the MACD in order to ensure a higher rate of profitable trades.

So, there is no need to do much price action reading with this strategy, although that is certainly always beneficial. The set of indicators used in this strategy provide all the information needed for it to work.
Forex MACD Trend Trading Strategy

The indicators we use for this strategy are:

  • MACD (with histogram) – the default indicator in MetaTrader 4
  • Parabolic SAR – also included in MetaTrader 4 by default
  • ATR (Average True Range) – A volatility indicator also included in MetaTrader 4

The Parabolic SAR was specifically created to provide better stop levels and better stop management. In this strategy, we use it for placing the stop and also as a confirmation tool for entering trades.

Entry rules:

  1. Enter long when the MACD histogram (in these examples shaded area with green vertical lines) crosses above the zero level and when the signal line (red line in these examples) enters inside of the histogram.
  2. At the same time, the Parabolic SAR indicator should be bullish. That is the blue dots on the charts shown here should be below the price at the point of a long entry. If the parabolic SAR gives a contrary signal with the dots being above the price then there are no conditions for a trade to be taken according to this strategy.
  3. Always keep an eye on important support and resistance levels on higher timeframes and make sure there are no significant obstacles in the way of the trade. For example, if you take the trade from the 4h chart, check where important support and resistance levels are on the daily, weekly and monthly timeframes.

    For best results, the MACD histogram should be above the zero level and the crossover of the signal line should happen at the same time as the Parabolic SAR reversal from bearish to bullish.

    ​The same applies for short entries only in the opposite direction.

Forex MACD Trend Trading Strategy

MACD Trend Forex Trading Strategy

Examle of a short entry using this strategy – AUDUSD 4h chart

​Stop Loss Placement:

The default stop for this strategy is placed according to the Parabolic SAR. What’s important is that this stop changes with each new session hence it becomes a trailing stop. So, as soon as the trade moves into some profit we start to trail the stop.

In order to avoid whipsaws and premature stop outs, it’s even better to use the dots of the Parabolic SAR as a stop on the close of the session, rather than simply to be taken out if price touches this level. However, currently, there is no such default feature in the popular MetaTrader 4 platform, although it can be done by using an expert advisor.

In the case of a stop out because of a volatility spike, it is acceptable to reenter again in the trade if the entry conditions are still in place.

Additionally, you can use the MACD indicator to aid your trade management.

Forex MACD Trend Trading Strategy

MACD Trend Forex Trading Strategy

An example of locking in profits on the trend losing momentum – AUDUSD 4h chart

Targets and Take Profits

Take partial or full profits if an important support or resistance zone is hit.

If there is a strong price reaction off a support or resistance zone it is wise to close the full position.
Additionally, if there is no support or resistance zone on the way you can use the ATR to take profits based on the average trading range for a given timeframe. 1xATR, 2xATR and 3x the ATR are good profit targets.

It’s best to take partial profits for example 1/3 at 1x ATR then 2/3 at 2xATR and the last third at 3x the value of the ATR.

Make sure there is at least a 1:2 risk-reward ratio where the risk is the stop according to the Parabolic SAR and the reward is the target based on support/resistance or the ATR.

To see how we can combine support and resistance we’ll use a zoomed-out 4h chart to demonstrate this situation. The support level was an important technical zone on the daily and weekly timeframes.

Forex MACD Trend Trading Strategy

MACD Trend Forex Trading Strategy

MACD Trend Forex Trading Strategy

An example of combining support with this strategy – EURUSD 4h chart
rfxsignals April 3, 2020 No Comments

30-Minute MACD Forex Trading Strategy

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Trendline Reversal Forex Trading Strategy

Trendlines are probably the most basic technical trading tool and one of the oldest tools used in technical analysis. To this day, trendlines continually form on the charts of financial markets across all the different timeframes providing regular opportunities for traders to jump in and profit on a piece of the action.

Trendline Reversal Forex Trading Stategy

​The trendline reversal trading strategy rests on the premise that most of the price action in the FX market forms trendlines and is contained by trendlines. As we’ll see in the examples later, as one trendline breaks another one forms and so on. It’s a continuous process actually.

Advantages of the Trendline Reversal Strategy are:

  • Provides a valid trading opportunity, either short or long, out of almost all setups. Most of the time, it’s only a question of which trendline is broken and which one stays in place (we will call it the healthy trendline).
  • Provides opportunities where most of the time the risk-reward ratio offered is great, usually 1:2 or more. This is because we place our stop just behind the healthy trendline and we ride with the move until a support or resistance zone is hit at a later time.

The essential idea of this strategy is: Just follow the trendlines!

The trader should constantly monitor both the support and resistance trendlines and redraw them as the old ones break and new ones form. When an intersection of the projections happens, one of the trendlines must be broken and the other will most likely continue to hold the price. We trade in the direction of the trendline that remained unbroken.

​Entry rules of the Trendline Reversal Forex Strategy:

  1. There need to be two intersecting trendlines on the chart. So, the trendlines should be going in the opposite direction.
  2. Wait for one of the trendlines to break
  3. Enter in the direction of the breakout:
    – Enter immediately on the breakout or
    – Wait for a retest – confirmation of the broken trendline before entering.
  4. We must be careful that we have clear targets:
    – In other words, we need to make sure there are no obstacles close to our entry level.
    – Obstacles would be support or resistance levels acting contrary to the direction of our trade.

​The following chart is a perfect example that highlights the philosophy of this trading strategy. Basically, we are constantly monitoring and drawing trendlines, and judging by the changes in the slope of every new trendline we can determine how likely a reversal is at any particular point in time.

In this case on the AUDUSD 4h chart, it was pretty clear that a reversal was imminent and we could have timed the entry to catch a nice profit of the move.

AUDUSD was making higher highs on this chart, however, upon closer inspection, we can see that the slope of the upward, support trendlines underneath was decreasing until it finally turned flat horizontal before the bearish breakout.

More importantly, a very steep resistance trendline formed from the top that finally caused the breakout and is used as the stop loss point for this trade.

Forex Trendline Reversal Strategy

Trendline Reversal Forex Trading Strategy

AUDUSD 4h chart – A nice U-turn formed by price action and emphasized with the trendlines

​Initial stop loss placement of the Trendline Reversal Forex Strategy:

After one of the trendlines is broken, and we enter the trade in the direction of the healthy trendline the protective stop loss is placed behind the healthy trendline.

The next chart is another example of how this strategy works.

After the downward trendline was broken the price didn’t continue up immediately but first retested the broken trendline from the other side. In this case price action didn’t just confirm the breakout of the old trendline but it also confirmed the formation of the new upward trendline – based on which a trade is taken according to this strategy.

Forex Trendline Reversal System

Trendline Reversal Forex Trading Strategy

USDJPY 4h chart – A great example of intersecting trendlines providing a great place to enter the market

​Stop loss management – trailing the stop

​It’s only logical that after we enter a trade based on a trendline we should trail the stop behind that trendline. Basically, as long as the trendline holds we want to be in the trade and as soon as it’s broken we want to be out of the trade at once.
Trendline Reversal Forex Trading Strategy

Trendline Reversal Forex Trading Strategy

USDCAD 4h chart – As soon as the trendline is broken we exit the position

Take Profit of the Trendline Reversal Forex Strategy:

Unlike the entry, we don’t have to wait for a break of the trendline to exit the trade. In fact, in order to capture maximum profits, you need to exit at some technical level before the price takes a turn and reverses.

For this purpose, it’s best to lock in profits at a prominent technical support or resistance level, or a Fibonacci confluence zone taken from the higher timeframes.

rfxsignals April 3, 2020 No Comments

15 Minute Stochastic Forex Scalping Trading Strategy

The Stochastic Forex Scalping Trading Strategy will allow Forex traders to make incremental profits over short time frames. Over time, these small profits can add up to substantial amounts and can prove to be very lucrative for forex traders.

For this particular trading strategy, the timeframe that should be used is the 15-minute chart. It can also work well as a scalping strategy on the 1-minute and 5-minute timeframes. You may use any currency pair that you like for this strategy.

Chart Setup

It is important that you set up your charts right in order to get the best results from this trading strategy. You may choose any trading session that you desire to use, and it is recommended that you work with the 1-minute, 5-minute, and 15-minute charts.

We will be using MetaTrader4 Indicators for this setup. Here are the indicators to use:

  • The Stochastic with the following parameters: slowing 16.0, %K 26.0, %D 18.0
  • The 120 EMA (purple on the charts) and the 50 SMA (orange on the charts)

Below is what a buy trade strategy would look like:

Stochastic Forex Scalping Buy Signal

15 Minute Stochastic Forex Scalping Trading Strategy

The first circle indicates the entry (buy) signal, while the second circle is the exit signal
Now it’s time to reveal the actual trading strategy:

The Buy Trading Strategy

Use the above chart to follow along. Proceed to buy only when both of the following conditions exist:

  • A clear buy signal is if the fast blue line of the Stochastic Indicator crosses the slow red line to the upside from inside the oversold region (below 20 level on the Stochastic). It should break and remain above the oversold region (above 20). Once this condition has been satisfied, you should proceed to buy.
  • Another buy signal is the existence of bullish pressure. This may be evidenced by the 50 SMA (orange line) crossing the blue line of the 120 EMA (purple line) to the upside.
You should place your stop loss about 2 pips below the support level.

When to Sell

The following scenarios are indicators that you should sell:

  • If the blue line of the Stochastic crosses the red line to the downside and from inside the area above the 80.00 level. It should break and remain below the 80.00 level on the Stochastic.
  • Another sell indicator is if the 50 SMA (orange line), goes across the blue line of the 120 EMA (purple line) to the downside. This indicates that there is selling pressure in the market.
Stochastic Forex Scalping Sell Signal

15 Minute Stochastic Forex Scalping Trading Strategy

Two short trade examples are shown here. Circles 1 and 3 are the entry (sell) signals and circles 2 and 4 are the exit signals
For a short trade, you should place your stop loss 2 pips above the resistance.

The Strategy for Exiting a Trade

If any of the following scenarios take place, you should exit the trade or take profit.

  • When the blue line of the Stochastic crosses the red line from inside of the overbought region (exit signal for short trades) or the oversold region (exit signal for long trades).
  • Another signal to exit the trade is if the 50 SMA indicator (orange line) crosses over the purple line of the 120 EMA from the bottom up during a bearish trend or from the top down during a bullish trend. This is an indication that the existing trend is losing strength. You should take profits and exit the trade at this point.
rfxsignals April 3, 2020 No Comments

5 Minute Scalping Forex Trading Strategy

5 Minute Scalping Forex Trading Strategy

The following is a 5-minute scalping forex trading strategy for the EURUSD, GBPUSD, USDJPY and EURJPY currency pairs. Scalping is a special type of trading strategy that helps the trader to make significant profits on minor price changes.

In this strategy, the trader needs to make a minimum of 10 trades within a single day in order to capitalize on any minor price changes. A strict exit strategy must be implemented in order to minimize any potential losses. In this particular strategy, the holding time is 5 minutes. This method requires precise execution and nimble trading.

Indicators to Be Used

In this trading strategy, the indicators that will be used are the 10 and 21 EMA, and the 50 SMA.

You should then open an ADX indicator in a different window set at 13.

At least 3 criteria must be satisfied for this trade.

5 minute scalping trading strategy

5 Minute Scalping Forex Trading Strategy

EURUSD 5-minute timeframe – Two bullish signals are shown with the circles on the chart. Circles 1 show the first buy signal and circles 2 show the second buy signal. The small support trendline is shown as the dotted black line. The price action accurately reverses in the war zone and continues higher.

Trade Criteria to Be Satisfied for This Trading Strategy

  1. The first criterion is that the 50 SMA angle must be more than 20 degrees. The measurement does not need to be absolutely accurate, a subjective estimate is sufficient.
  2. The second criterion is that the price should pull back through the 10EMA to the 21EMA. The area between the 10EMA and the 21EMA is the fire or war zone.
  3. The third and final criterion for this trade is that the price must stay on the proper side of the small resistance or support line. You should draw a trend line from the last high or low prior to the cross of the 50SMA to the next high or low. This will form a small resistance or support line.

Trade Set up Rules

  1. The price and candles must all stay on the correct side of the small trend line. Otherwise, the possible trades will be canceled.
  2. Pullbacks of candles towards war zone must be smooth and flat.
  3. After identifying the first candle to enter the war zone, wait for the second candle to pullback from 21MA towards 10MA and then enter the trade on the pullback.
Picture

5 Minute Scalping Forex Trading Strategy

EURUSD 5-minute timeframe – Two bearish signals are shown with the circles on the chart. Circles 1 show the first sell signal and circles 2 show the second sell signal. The small resistance trendline is shown as the dotted black line. The price action accurately reverses in the war zone and continues to the downside.

The Trade

Enter the trade in the war zone by making a market order and putting your stop loss 6 or more pips away. Do not use a trailing stop loss. Profit limit must be between 10 and 15 pips. Only trade where there is a good set up. Enter on small candles and look out for flat pullbacks.
rfxsignals April 3, 2020 No Comments

Forex Breakout Confirmation Strategy

This forex strategy tries to exploit the times when the market is not trending. In essence, it rests on the statistics which show that the Forex market is trading in a range for about 70% of the time and it’s trending only about 30% of the time.

​Since price fluctuations are very unpredictable and irregular while inside of a ranging formation, it’s better and wiser to trade on a breakout of that ranging formation instead of trading it.

Forex Breakout Trading System

The breakout confirmation strategy aims to profit on such situations when the price moves out of the range and as a result, usually follows a more predictable path.
Still, we can not go blindly and trade any breakout that we find on the charts. In fact, the truth is that most of the breakouts in the Forex market are fake and you will actually lose money if you are not very experienced in trading breakouts.

That’s why a specific set of conditions must be met in order to increase the chances of making a profitable trade.

Conditions of the Forex Breakout Confirmation Strategy:

  1. ​Obviously, there must exist a range for the price to breakout out of.Now, for the purpose of this strategy, a range is not only the horizontal case but also a channel sloped upwards or downwards, as in a trend. In fact, a channel in a horizontal position is the classical form of a trading range.
  2. Next, before we consider entering a trade we need to have the price breakout out of the range or the channel.
  3. Finally, to initiate a trade we need to have a confirmation of the breakout. This confirmation massively increases the probabilities that the breakout is true and hence the trade will be profitable. Without a confirmation, there is no trading signal as per this strategy.

Note: The mechanics of this strategy can be also successfully used in determining true breakouts in single trendlines (without a range or a channel). However, a break of a simple trendline has proven to be less significant than the breakout of a channel or a range. Therefore, trendlines are not included as a condition in this strategy.

Entry rules:

  1. Find a well-established channel or range on the chart.A channel is defined as a period of time when price action is trading within two parallel trendlines on the chart and is prominently touching those two trendlines during this period. 

    For this strategy, a minimum of three touches is required on each trendline, as in the example below on the AUDUSD 4h chart. However, experience tells as that the more times the trendlines are touched the more significant the channel becomes. This in turn later makes the breakout much more significant as well.

  2. Wait for price to clearly break the range with a close outside of the range.

    Note here, that for a range you can trade the breakout in both directions either short or long depending on which way it breaks out. However, it’s different with channels because they often represent trends. So, the rules here are:you can trade an upward channel breakout only to the downside, and
    a downward channel breakout is only valid to the upside.

    When the opposite happens it can actually be a trap (often referred to as a bubble) and price quickly reverses.

  3. Wait for a pullback in price to retest the broken border (trendline) of the range.
  4. Enter after a successful retest of the trend line and a rejection of a move back inside the channel.Successful retest simply means prices have reversed from the trendline in the direction of the breakout. Usually, this occurs with some reversal candlestick pattern, like candles with long wicks (Pin Bar). This situation is shown in the example below at the entry point.
Forex Breakout Trading System

Forex Breakout Confirmation Strategy

AUDUSD 4h chart upward channel breakout and reversal – The breakout is confirmed and price action follows through to the downside!

​Initial Stop Loss Placement:

One of the best parts about this strategy is that it usually provides very tight stops and big profit potentials.

The stop loss should be placed right behind the retest of the broken trendline. That is:

  • above the retested highs in a downside breakout (look at AUDUSD chart example above); and
  • below the retested lows in an upside range breakout (look at USDJPY chart example below)
Forex Breakout Trading Rules

Forex Breakout Confirmation Strategy

USDJPY 4h chart – Horizontal range upside breakout (the blue circles mark the defining points of the range – each time the trendline is touched)

Targets and Take Profit Rules:

For a horizontal range

 

  • Measure the height of the range and project it from the point of breakout.4 possible targets can be calculated in this manner:

    1st target – 0.5x the height of the range

    2nd  target (most probable outcome) – 1x the height of the range

    3rd target – 1.5x the height of the range

    4th target – 2x the height of the range

    It’s best to take profit on part of the position at each of these targets or use a trailing stop after the first 2 targets are reached.

For a sloping channel

 

  • Measuring and projecting the height of the channel is not as reliable as with the horizontal range. That’s why it’s better to target major support or resistance levels instead.Zoom out on a timeframe that is 1 degree greater than the setup chart.

    Look for past support or resistance levels beyond the breakout and use those as targets.

    If no prominent support or resistance levels are present, use Fibonacci retracements and extensions to determine important price levels.

    Note: If the appropriate target level (support or resistance) is too close to the entry point then trades should not be taken.

Forex Breakout Confirmation Strategy

Downward channel on AUDUSD 4h chart – The retest of the broken trendline can happen much later after the initial breakout. It’s still a valid signal.

Conclusion

This forex breakout trading strategy is little more advanced and requires experience of drawing the channels, recognizing ranges and Price Action patterns. However, once you master it, you will become the real professional Price Action trader.