52# Daily FX Trading System

Submit by joker

 

Essentially, we look to place a SELL trade only when price itself is below the MA(100) line and similarly, only look to place a BUY trade when price is above the MA(100) line. With this system if this first condition is not met, there is simply no trade. A major rule of successful trading is to follow your system. A good system has rules or conditions for a reason, and they are normally there to minimise risk and maximise gains, so obey them.

So, once the MA condition is met, we then wait until the fast stochastic line (the dark blue line in my template) crosses the slow stochastic line (the light blue line). However, we only enter a trade when the stochastic is at a value between 20 and 80.

Once we are in a trade we look to exit the trade when the stochastic lines cross again, ideally at the other end of the indicator channel. I tend to find the best trades are when the stochastic lines are leaving the oversold/overbought regions of the indicator channel, ie crossing up from under 20 and crossing down from over 80.

Sell Trades:

1. Price must be below the EMA(100) line. Furthermore at least the previous candle must have closed below the EMA. As you will notice price does not cross the EMA very often, when it does it is quite significant and normally implies that a change in the trend is imminent.


Therefore, as we want to minimise trading risk, we wait until price is established below the EMA.

2. Once the first condition has been met, we now focus on the stochastic indicator. The fast stochastic line must have crossed over the slow stochastic line from above and it must be between 20 and 80. If the cross has occurred between 100 and 80, we must wait until the stochastic crosses the 80 line.

3. Once the stochastic criteria have been met, place a sell trade at the opening of the very next daily candle.

4. Place a stop loss 150 pips above the entry price. If you are trading a more active currency pair like the GBPUSD, where price swings can be large, the stop loss should be at least 200 pips. Remember you are dealing with the Daily charts, not the 1H or 15M charts so the stop loss level needs to be appropriate for the time frame used.

5. Assuming that the trade is moving with the trend in the anticipated direction, price at some point will hopefully show a gain of +100 pips. When this has occurred, move the stop loss position to the entry price, to ensure the remainder of the trade is risk free.

6. Close the trade at the end of the daily candle when the 2 stochastic lines cross once again. For a trade close-out, it does not matter where the two lines cross on the stochastic indicator channel.

7. Congratulate yourself on a successful trade.


NB. Both EMA and stochastic conditions must be met before placing a trade. Should the stochastic cross condition be met before a daily candle has crossed and closed below the EMA, wait until a daily candle has closed below the EMA line and then enter a SELL trade at the start of the next daily candle. This situation mainly occurs at a time when a change in trend is imminent so be careful.

Buy Trades

1. Price must be above the EMA(100) line. Furthermore at least the previous candle must have closed above the EMA. As you will notice price does not cross the EMA very often, when it does it is usually quite significant and normally implies that a change in the trend is imminent. Therefore, as we want to minimise trading risk, we wait until price is established above the EMA.

2. Once the first condition has been met, we now focus on the stochastic indicator. The fast stochastic line must have crossed the slow stochastic line from underneath and it must be between 20 and 80. If the crossover has occurred between 0 and 20, we must wait until the stochastic crosses the 20 line.

3. Once the stochastic criteria have been met, place a buy trade at the opening of the very next daily candle.

4. Place a stop loss 150 pips above the entry price. If you are trading a more active currency pair like the GBPUSD, where price swings can be very large, the stop loss should be at least 200 pips. Remember you are dealing with the Daily charts, not the 1H or 15M charts, so the stop loss level needs to be appropriate for the time frame used.

5. Assuming that the trade is moving with the trend in the anticipated direction, price at some point will hopefully show a gain of +100 pips. When this has occurred, move the stop loss position to the entry price, to ensure the remainder of the trade is risk free.

6. Close the trade at the end of the daily candle when the 2 stochastic lines have crossed once more. For a close-out, it does not matter where the stochastic lines cross on the stochastic indicator channel.

7. Congratulate yourself on a successful trade.

 

NB. Both EMA and stochastic conditions must be met before placing a trade. Should the stochastic cross condition be met before a daily candle has crossed and closed above the EMA, wait until a daily candle has first closed above the EMA line and then enter a BUY trade at the start of the next daily candle. This situation mainly occurs at a time when a change in trend is imminent so be careful.

GBPUSD Analysis

Having now explained the conditions required for placing a BUY or SELL trade using this system, let’s now look at the trades on the GBPUSD during the past 6 months. I will walk through all the trades making comments on each one. Hopefully this will make things clearer and will answer a number of questions.

Please refer to the screen graphic below of the GBPUSD Since mid December 2008. Each line indicates where I entered a trade. 

 

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