Forex trading strategy #1 (Simple balanced system)

Dear Edward,

one of your last post, you wrote that we need to see larger time frame. Im using 1 hour chart so what sholud i check in llarger time frame let say 4 hour and daily chart? Pls answer this as i got very confuse by the signal given by 1 hour usually doent match up with 4 hour and daily chart. thank you.

A larger time frame for 1 hour trading is 4 hour.

Best regards,
Edward

Hi Edward

Thanks for the great strategy it makes for good reading - i use a similiar technique i use a 4 hour chart (with 5 EMA, 10 EMA and stochastic 10,3,3) to check the trend based on the signalling of the 5 EMA and 10 EMA and then look at the 15 min charts and wait for a confirmation signal confirming the same direction before entry with the RSI parameters as you specified.

However often when the 4 hour chart is an overbought/oversold position the 15 min chart is mid-range. My query is with regards to whether i should be restricting my trading in the 15 min chart when the 4 hour chart is overbought/oversold (ie not buying when overbought and not buying when oversold on the 4 hour chart)or would this make entry opportunities virtually non-existent?

Regards

Shane

Hi Shane,

On the 4 hour chart, when you have RSI in the overbought territory, it is still a buyers' area, although we don't know for how long the dominance will last.
(RSI and Stochastic - both are oscillators, so the rules for oversold/overbought trading are the same).
The rule is that in an overall uptrend, when RSI reaches an overbought area - it is expected to hang on there for a while, may be bouncing in and out a bit, but overall, it is just the beginning of an extended up-move. You don't want to miss that, so you should continue trading with new Buy signals coming from 15 min charts.

When in an uptrend, RSI moves into an oversold zone, that's where you expect a quick reversal. It is also a great opportunity to catch some early Buy signals on 15 min charts as RSI exits from the oversold zone.

Same rules (but in reverse) apply to Selling in a downtrend.

Best regards,
Edward

hi Edward,

Thanks for the clear clarification of the above strategy,
The above link is to the screen print of my trading platform after applying the indicators Could you please explain, whether I have done it correct and is the Stochastic correct and its Level 80 is not to be seen any where and also do I have to enter the trade as the EMA crosses.
Thanks

The indicators are set properly.
You have to enter when 5 EMA crosses 10 EMA + conditions for RSI and Stochastic are met (as described in the original rules).

I'm not sure why the platform gives you different levels for Stochastic. I haven't seen 5, 10 or 15 levels used anywhere. I think it's better to ask your broker about those numbers, and how they refer to 80 (overbought) and 20 (oversold) for Stochastic, the way we normally know it.

Best regards,
Edward

Hi..

Thank you for the reply, my live trading is done on FXCM platform, in that there are 2 Stochastic, one is STOCHASTIC other one is SSD (Slow) which one we use here

thanks

hi..in FXCM platform there is only one RSI and can enter only one figure when adjusting the indicator, which means can apply only 14 but not 70 & 30, why is that?

thank you