- 1 the trading strategy and results!
- 2 What are the rules to the trading system?
- 3 What is the theory behind this trading strategy?
- 4 The beauty of this system
- 5 How do I test this strategy?
- 6 example trades
- 7 To summarize
Very excited to share this strategy with you. It is one that has a much quicker turn around time on making profits. It offers a 1:1 risk to reward coupled with a high percentage chance of a winning trade.
Perfect for newbie traders! I have just recently mastered this one and tested it over ten years worth of data on all the major pairs.
Although all the pairs I tested were profitable, the EURUSD stood out as the one yielding the best results.
If you prefer to watch instead of read about the strategy, here is a video below. If you are going to use this strategy seriously, I would also recommend reading the rest of the post.
the trading strategy and results!
|Signal||Price moves over SMA|
|Indicators||150 SMA and 200 SMA|
|Risk||2% of trading account|
|% chance of win||71%|
|% chance of loss||29%|
What are the rules to the trading system?
We will be using the 150 and 300 SMA in conjunction with price action to decide when to take a trade.
It is important that we don’t enter trades when the price is not close to touching the 150 SMA (even if we see signs of a reversal). We are looking for price to have crossed through the SMA or to show signs of reversal very close to the 150 SMA.
The entry signal to take a long trade will be a stalling, reversal type candlestick like a doji, hanging man or shooting star.
Condition: 150 SMA must be above the 300 SMA signalling an uptrend.
If price falls back and nearly touches or breaks through the 300 SMA to the downside, and the 150 SMA is still above the 200 SMA, we will look to take a long trade.
Below is an example of the perfect entry for this trade;
In this instance, price does not cross over the 150 SMA but we see signs of a reversal very close. So we would be find to enter at this point.
Condition: 150 SMA must be below the 300 SMA signalling a down trend.
If price moves up and nearly touches or breaks up past the 150 SMA and the 150 SMA is still below the 300 SMA then we will look to take a short trade.
The entry signal to take a short trade, again, will be a stalling, reversal type candlestick like a doji, hammer, hanging man or shooting star.
Where do we put the stop loss?
The stop loss is placed just below the 300 period SMA for that day.
Where do we take profit?
We will set a take profit the same amount of pips away as the stop loss so that we get a 1:1 risk reward ratio.
IMPORTANT! WHEN NOT TO TRADE
Do not trade straight after the MA’s cross over as per below. Wait for the market to make a move in the direction and enter on the next pull back to the 150 SMA.
even more important! money management rules
One of the keys to making this system successful is to be consistent with the amount in dollars that you risk per trade.
No more than 2% of your account should be risked in any one trade.
If you start with an account of $10,000, your maximum risk per trade can be $200. Use this figure and make sure it is consistent throughout all trades, i.e you are consistently risking only $200 per trade.
If the set up for the trade requires you to place a stop loss 100 pips away, then you can afford to risk $2 per pip.
If the set up requires you to place a stop loss 200 pips away, then you can only afford to risk $1 per point.
What is the theory behind this trading strategy?
The theory behind this strategy is to identify point of value when the price has a higher likeliness of moving in a certain direction. We have identified this area as the point where price is moving in the direction of the trend, but retraces back close to the moving averages. Once we see signals of price stalling or turning around, we enter.
The beauty of this system
With a 1:1 risk to reward ratio, the only thing you need to make this system profitable is to make sure you are winning 51% of the time and over. I will let you know, even in turbulent choppy markets that I have tested, this strategy has a hit rate of 59%+. Pairs like the EURUSD have a hit rate of 70%+.
How do I test this strategy?
I have tested this strategy using Forex Tester 3. This piece of software for me has ended up saving thousands of dollars being able to test strategies to see if they work before applying them to live markets. I would highly recommend that everyone else does the same.
Long trade example
A snapshot taken from the EURUSD below shows us an entry point for this system. As you can see, price retraces back to the blue 150 SMA and starts to stall. The two candlesticks we can see that indicate this are the two “Doji” type candlesticks. As you can see, these indicate a reversal of what was a strong downwards move.
In this example again, price does not cross over the 150 SMA but it does come very close. We would also look to take this trade if price had crossed through the 150 SMA and started to reverse. As long as it doesn’t break through the 300 SMA before reversing, either scenario would be good for an entry.
Later on this trade went on to become a profitable one. As per the snapshot below.
The whole trade took 48 market open days.
short trade example
Below is a good example of short trade entry point. The moving averages have crossed over and begun to move clearly in the downward direction. Price retraces back and crosses the 150 SMA, then begins to stall. We see signs of price stalling and a potential reversal in the form of a small “Doji” like candlestick. At this point we enter the trade.
As you can see from the snapshot below. We were out of this trade for a win only 8 market days later. The move was 230 pips.
If you follow this system consistently and to the exact rules that I have laid out at the beginning of the post, I am confident that you will be able to make a profit trading forex.
For more trading system videos check out the YouTube channel FX City
Or for more posts click here to visit my trading systems page.
Disclaimer: Past results do not guarantee future results.