FREE FOREX STRATEGIES

Forex trading strategy #14 (Stochastic + EMAs' cross)


Submitted by Arsalan

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I have developed a new strategy and it is based on stochastic and exponential moving average. Although it is very simple but it is very effective for short term trading.
The strategy is as follows:

Time frame - Daily.

Indicators - Stochastic (5,3)
2 Days exponential moving average.
4 Days exponential moving average.

Buy Setup - Stochastic(5,3) should be below 50.
Buy when 2 Days EMA crosses 4 Days EMA from
downside to upside.

Short Sell Setup - Stochastic(5,3) should be above 50.
Short Sell when 2 Days EMA crosses 4 Days EMA
from upside to downside.

Stochastic + EMA cross Forex daily system

Stop loss - Below low of the Entry day but it should not be more than 3 % from your entry price this is my way of using stop loss but you can use stop loss as per your risk appetite but try to maintain Risk:Reward ratio of at least 1:3.That is if your target is 15 your stop loss should not be more than 5.

Target - Exit when Stochastic(5,3) reaches near overbought zone i.e near 80 if you are long.
Exit when Stochastic (5,3)reaches near oversold zone i.e. near 20 if you are short.

2 Days and 4 Days emas crossover provides early entry into the trend and stochastic helps to filter out false signals.

I have tried my best to keep this as simple as i can and i hope everyone will like this strategy.

Happy trading,

Regards,

Arsalan.

More strategies by Arsalan:



Special thanks and wish of prosperity to Arsalan
from entire Forex Strategies Team
http://forex-strategies-revealed.com/

Thank you Arsalan,
Is that correct: for a Buy setup Stochastic should be BELOW 50?
Same for Sell. True or typo?

Hi,

For Buy Setup Stochastic should be BELOW 50.
For Sell Setup Stochastic should be ABOVE 50.

If you have more doubts then post it here i will try my best to clear your doubts.

Happy trading,

Regards,

Arsalan

What's the success rate of this setup? Any test on this? Pls advise.

Walter

Hi Walter,

The success rate of this system is more than 65%.I have been using this system since last 3 months and it is giving me good results.I use this system on my real account and it gives me nice profit.Since i am a Stock trader and not a forex trader i cannot tell you how effectively it will work for forex trading.First try it on a demo account then decide whether it is effective or not.

Happy Trading,

Regards,

Arsalan.

Hi Arsalan,

This strategy certainly looks good. I do have a few questions on this strategy.

First,the Buy setup should be when Stochastic BELOW 50. However from my backtesting experience with the Eur/Usd pair, I noticed to wait for Stochastic < 50 and for the EMA to cross up have limited entry opportunities. So the question is, can I enter a buy entry when the Stochastic is between 50 and 80 typically around 65? Because I noticed many but of not all buy trades can still be entered with nice profit opportunities when stochastics is between 50 and < 80.

Second, if I do decide to strictly follow the Buy Setup when the stochastics is < 50, but if only one of the lines is < 50 and the other line is just > 50, can this still be considered as stochastics < 50?

Is this strategy limited to the Daily timeframe, how about 4 hourly? Is there a currency pair that suits this strategy best?

Best Regards
Robin

Hi Robins,

Q.1) Can I enter a buy entry when the Stochastic is between 50 and 80 typically around 65?
A.Yes you can enter between 50 and 80 but be cautious because it will be very risky but with strong money management principles risk can be easily handled.

Q.2) Second, if I do decide to strictly follow the Buy Setup when the stochastic is < 50, but if only one of the lines is < 50 and the other line is just > 50, can this still be considered as stochastic < 50?
A.I consider stochastic below 50 only when both lines are below 50 but sometimes i break this rule when there is some strong supporting evidence like price is very near to support zone for long entries and vice versa.

Q.3 Is this strategy limited to the Daily time frame, how about 4 hourly? Is there a currency pair that suits this strategy best?
A.You can use this strategy for 4 hourly chart but i think whipsaws will be more in 4 hourly chart but still i think you should try it.I think Myronn's trend line trading strategy is best strategy for trading on 4 hourly chart. I use Myronn's for my trading and it gives me nice profit in intraday trading.

Sorry for replying so late.

Happy Trading,

Regards,

Arsalan

OK Thanks Arsalan. I appreciate it. Cheers.

Robin

Hi Arsalan -
Thanks for sharing your trading method - the help is invaluable!
I have just recently started trading forex and want to keep it simple after learning some harsh expensive lessons on hang seng futures :(
Your strategy looks like an excellent place to start but i have one question:
I am using global trader charts and when i add a stochastic study i only have the option of Stochastic Slow and it asks for input of 3 fields: Observation period (1-300), Averaging period Slow (1 - 300)
and Averaging period Fast(1 - 300).
My question is how would i enter only Stochastic(5,3) as per your example?

Any help would be appreciated.
Thanks,
Stephen.