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Advanced system #6 (Picking Tops and Bottoms)


Were you told not to hunt for tops and bottoms when trading..?
Why not break the rules when you can tell with an astonishing precision where the next top or bottom will be?
Here is one very nice and accurate trading system that could make your Forex trading entirely about hitting the right spots.

Trading setup:
Time frames: 5, 15, 30 minutes, 1 hour, 3 hour and 1 day – just one chart at the time will be used.
In case you do not have the exact time frames, simply substitute them with the closest ones. For example, 15 min can be changed to 10 min, 3 hour can be changed to 4 hour etc.

20 EMA and 40 EMA on all time frames
ADX 14 for all time frames.
Currency pairs: any.

The idea behind this Forex method is that ADX helps to measure the strength of the trend while 20 EMA acts as a flexible support-resistance line.

Trading rules:

Our first goal is to find the chart with ADX being over 30 mark, which will indicate a strong trend. We start with a daily chart and continue the search moving downwards (3 hour, 1 hour, 30 min, 15 min, 5 min) until we find the chart with ADX being currently over 30.

Note: In case several time frames meet requirements for ADX, we opt for the highest time frame. That's why we start with the highest frame first.

Having chosen the time frame, we are ready to trade the first bounce off of the 20 EMA. We set a limit order close to 20 EMA accordingly: in a downtrend we expect the price to touch 20 EMA from below, then reverse and move down, in an uptrend – from above, reverse and move up.

Always make sure that at the moment of entry you are using the highest time frame with ADX currently over 30. Only then you can expect the price to obey 20 EMA.

That's it.

Initial Stop loss order is placed above (when short) / below (long) the 40 EMA.
Important note: once in the trade stay with the time frame used for entry.

Risks: looking at the charts traders will find that at times the price reverses exactly at 20 EMA, but sometimes it moves even further before making a u-turn. Always be ready to leave some room for the price to make this turn, that's why we suggest using 40 EMA for stops.

FOREX SYSTEM


Exit rules:

Option 1: Use Bollinger Band with settings (18, 2) for all time frames. Set a profit target at the outside band. Move your profit target as the Band expands or narrows.

Option 2: For traders familiar with Fibonacci tool, profit target can be set to 1.618 expansion level. AB Swing for Fibonacci should be found from the earlier price moves and the actual point of entry should be considered as point C or a retracement.

Option 3: Once the price clearly moves in your favor move the stop below/above (Long/Short trading) the previous price bar. Adjust the stop with each new price bar. Trade until stopped.

Also exit always if ADX goes below 30 on the time frame which was used for entry.

That’s it. Test it and see that it works remarkably well.

P.S. Accuracy of this strategy is quite difficult to backtest/visualize using historical data. If you decide to do so, make sure you do it right and know what time frame should have been chosen for trading at any given time. The easiest way to analyze current strategy performance is by running it in real time.

Happy trading!

Edward Revy,
http://forex-strategies-revealed.com/

Copyright © Forex Strategies Revealed


It is cool to determine trend with ADX

Hi Ed
i notice some thing. for example when i enter buy and the candle touch the moving avarage exp 20 the deal goes right and i got 10 or 15 pip and the candle break the upper bollinger band which as i understand it is the exit signal but the price continu to go higher. it looks like that it stick with line of the bollinger band. i feel bad about this lost pips is there any other exiting signal?

Another thing some thimes i notice that when the ADX goes below 30 and it breaks the bollinger band line it still going in my deal direction.

waiting for your comment
Hanz

Hi Hanz,

There are two moments about Bollinger band trading.
If a candle touches but doesn't close outside the upper/lower band, then the price tend to reverse.

However, if we have a candle closed outside BB, this suggests trend continuation.

In either cases, you may try moving your stop half way the length of the candle (usually when it is very long) OR below(uptrend)/above(downtrend) the last candle that touched or broke BB.

Then if you haven't been stopped out with the next one, chase the price further adjusting your stop with each new price bar.

As about ADX going below 30, I would still recommend exiting, that's the way I saw it while testing and trading. Exceptions happen, and I would only appreciate your additional comments in case my theory about it was wrong.

Regards,
Edward.

you are the master Ed i just trying and once i found some thing i just discuss it with you
i am new in forex, and i really appreciate you support thanks again
Hanz

Dear Ed,
just a small idea could we use the strategy in addition to MACD indiecator as a filter ( i mean if we chosse to enter buy we will not exit till the MACD lines cross over in the reverse direction) what do you think? is that could improve our exitpoint or not? i am still trying it

Hanz

hi Hanz,
MACD will most likely suggest too late exits here.
Anyway, keep testing, that's the only way to find winning approach.

Regards,
Edward.

Hi Edward,

Thank you very much for sharing this strategy

I have been trying out This strategy, and I have some questions. When trend reverses (in any time frame) price does not bounce of 20SMA, I lost 20pips on a 15min time frame which was the only one that matched. Is there any way to predict trend reversing while using this method? Is this method safer to use on larger time frames, Since I have another trade still running with +36pips (daily chart).

I would hate to see the price go through 20sma on a long term trade, with a take profit of over 70pips and a similar stop loss.

Hi,
This method has proven to work well from monthly to 1 minute time frame. There is no need to exclude smaller time frames I think.

When there is a trend change some losses may occur. That's normal.
How to spot a trend change? There is a popular method of finding divergence between the price on the chart and indicator's suggestions: MACD, Stochastic, CCI, RSI - any of those can be used to hunt for divergence.
We've covered basics of this topic here: http://forex-strategies-revealed.com/trading-system-divergence

Look also for some other resources on the Internet. The more you find, the better will be your chances to master this technique.

Regards,
Edward.