530# RSI divergence with Two SMA
Divergence Trading
Submit by Buddy 13/01/2014
RSI Divergence with Two SMA is a system is a trend follower , and it’s mainly designed to catch the long term trend movement and follow it until it
changes direction and start an opposite trend.
It’s also designed to keep traders away from the market if the
trend is too weak or there is no clear/strong trend direction.
What makes this system even more powerful is that it’s easy to
follow and understand. It doesn’t require any trading experience.
Best Time frame is 1 Hour Chart, the system can be used with all
currency pairs.
The system uses two main indicators to identify major trend’s
direction.
First indicator: Simple Moving Average ( 9 SMA and 200
SMA ).
How to read this indicator and identify the trend?
9 SMA ( Blue Line ) Above 200 SMA ( Red Line ) = Up
Trend
200 SMA ( Red Line ) Above 9 SMA ( Blue Line ) = Down
Trend
Second indicator used with this system is RSI Divergence
( Period : 21 ).
How to read this indicator and identify the trend ?
Red Bar Below 0 line, After Down Arrow = SELL Signal
Blue Bar Above 0 line, After Up Arrow = BUY Signal
USING BOTH INDICATORS…
SELL TRADE:
1 - Down Trend Signal
2 - SELL Signal
Simple Moving Average = Down Trend Signal
RSI Divergence = Sell Signal
BUY Trade:
1 – Up Trend Signal
2 – SELL SignalSimple Moving Average = Up Trend
RSI Divergence Indicator = Buy Signal.
Playing with stop loss and profit taking is an art. It requires a bit
experience. So if you are new to trading, you can use the
following simple rules:
Place target profit to 30 pips. And set stop loss to be the same.
Get out of the trade when you reach target profit, or when you
see the reverse signals. For example, when you are in a buy
trade, get out when you see one of the two indicators change
color.
If you are an experienced trader, please go ahead with the next
section describing how you can place targets & stop loss with
Fibonacci levels.
For advanced traders:
For targets and stop loss , we are going to use one of the most
powerful trading tools. The Fibonacci levels! Read Forex Bill Killer
System #1 to learn more about using Fibonnaci retracement and
extension levels to place Stop Loss and Target Profit.
Again, this section is only for advanced traders. So let’s go ahead.
The principle is: Once price breaks support or resistance, we
place Fibonacci levels over the last wave for that level.
The above example shows USD/CAD 1H chart, support was just
broken and we placed Fibonacci levels over the high and low of
price wave.
Our Stop loss would be the 0.0 level
And First Target would be the 161.8 level
Second Target would be 261.8 level
Example trade
In the above example , the system generated a buy signal ( Up
trend ).
What we have done next is that we used Fibonacci levels to set
entry/targets and stop loss levels once 1H resistance was broken.
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