Advanced system #3 (Neat entry: RSI + Full Stochastic)

Hi Edward,

First let me thank you for sharing this great trading strategy.
I am doing back testing on hourly and 1/2 hour charts, where daily entries are very much possible. I put my TP 50pips and SL 70. it seems that it is working fine.

your feedback and suggestions is always appreciated
I will finish the excel file and share it with you guys.

Regards,
Salem

I just wanted to say thank you for you time and dedication in helping your fellow traders. This is really a wonderful sites and your strategies are great, here i am able to see things that i have never seen before and you actually make trading fun and profitable. Thank you once again!
Umair

Hi Andy,

In reply to your question let me quickly refer you to my comment written on December 14th on this page:
http://forex-strategies-revealed.com/advanced/rsi-fullstochastic/cpage-1...

I hope it'll provide the answer to your question.

Best regards,
Edward

Hi Edward,

looking at the very first screenshot on page 1 where you show some successful trades marked on the chart as both the RSI and Stochastic indicators fall below their relevant levels, I have noticed that in ALL cases, the RSI has risen back up again before the stochastic crossover occurs. If this is the case, then surely the RSI indicator is not required as the trading signals are actually being triggered by the stochastic crossover and not the RSI (which has, in effect, come and gone by this time). Is this correct or have I missed something?
thanks
Andy

Hi FaceReality,

well, RSI and Stoch have similarities in the way they provide signals, after all they are both oscillators. I haven't studies their formulas much though.

Regards,
Edward

Thank you for the good note, FaceReality

It is true, Wilder never meant RSI to be an oversold/overbought indicator.

...But then over the time traders actually made it an oversold/overbought tool. Since many traders nowadays act and react to RSI oversold/overbought signals, I believe there a reason to state that RSI indicator has found its new purpose and interpretation, forced by masses.

Best regards,
Edward

Hi Andrew,

sorry for the delay.

When you use 9 EMA, try taking full advantage of it:
as I mentioned in previous posts, when price crosses over 9 EMA against your position, you can either exit a trade without hesitation, or at least tighten your stop which would be around 1.4500 after the close on April 1st. (stop loss reference candle - March 27th - is the last retreat before you accept a loss.

Also Stochastic crossover and RSI reading over 50 on April 1st should have warned you too.
If to sum everything up, you did the right thing by placing an initial stop loss behind the swing high, but then you should have also stayed alert to the market and reacted on changes and warnings you saw on Aprils 1st.

Experience comes with practice. Keep practicing. The next time you face the same situation, you'll already know how to react.

Best regards,
Edward

hi all,

just making a note here. RSI when initially formulated (by wilder) was NEVER meant to be an oversold/overbought indicator. you might want to check out wilder's definition in his original book. its a momentum indicator and the primary usage is for divergence ONLY.

just some opinion. good trading to all

FaceReality

Sorry !

I'm quite bright really. ;)

Andrew

In order for us to see a screen shot, you should attach a link to it within the comment after uploading the file. Thank you.

Hi Edward,

Thanks for your comments.

My last query relates to the screenshot attached.

As per the 9EMA method, I shorted GBP/USD at 00:01 on the 30th March (at 1.4318). After a good first day, the price quickly moved against me until it crossed my stop (1.48) on 3rd April.

As you can see, the stochastic lines crossed on the 1st April. Should I have exited then ?

In hindsight, shorting GBP at the same time as the G20 summit was not a great idea. Any other tips gratefully received. I like this strategy but do feel a little unlucky at the moment.

Thanks,

Andrew

Hi Claude,

:) I guess it may look bizarre or as if I have done that by mistake.
No, I've done that on purpose, as you've said: to get a valid signal I needed.

Kind regards,
Edward

Hi Walter,

Thank you for your feedback!

you can use 9 EMA method for both entries, exits and also pyramiding positions:

Regarding entries please read about the 9 ema method itself.
Regarding exits please kindly review the comment above this one, where I replied to Andrew today.
Regarding pyramiding, it'll be the same scheme as for the original entry: the price has to newly close on the opposite side of the 9 ema in the direction you want to trade.

Speaking about alternative methods for taking profits, I would also recommend looking at divergence methods: Stochastic divergence, MACD divergence, RSI and MFI divergence, whichever one works best for you.
Here is a good MACD divergence example.

You may try to ignore the exit signal given by 9 EMA as long as you don't see a divergence... but then sometimes price reverses without a divergence (otherwise we would have an ideal exit strategy here...), therefore you have to have a backup exit plan, which should be your other indicator, say, 20 SMA: if price makes closes on the opposite side of the 20 SMA you should consider exiting. Alternatively, it can be any other oscillator indicator which would flip from above to below zero and vise verse.

Best regards,
Edward

Hi Andrew,

a tighter stop is always a challenge, because you cannot allow a stop to become too tight - it'll be hit.

I would use next steps:

1. set the initial stop behind the swing high/low.
2. if there are Parabolic SAR dots, which are closer to our entry point, then move the stop to the last but one SAR dot.
3. As trade progresses, with aech new day you move SL according to SAR indicator and at the same time watch the candlesticks: if a candle closes on the opposite side of the 9 EMA you can:
a) exit
b) tighten your stop below the most recent daily candle - it'll be the one that closed on the opposite side of 9 EMA. Also, if you prefer choice (b) make sure you switch to the hourly time frame and inspect market position in the relation to the daily Pivot point level. If price closes on the opposite side of the Pivot point against your position, or already is there, you exit without hesitation at the best possible rate.
(You can use Stochastic crossover (or any other momentum indicator) to catch a moment for the best exit).

Andrew, regarding your last question on April 1, 2009, I think I would need you to clarify it, or possibly send a screenshot or a sketch example. Thank you.

Regards,
Edward

Edward,
Just a question. Standard overbought/oversold levels are 70-30 for RSI and 80-20 for Stochastic. Is there a reason you inversed them?
I suppose the reason is for a more valid signal. I just find the coincidence bizarre.

Claude