Best Trade setup for Forex pairs tradingStrategy to execute trades in forex market, works for all pairs (please do back testing to gain confidence) :
What we need :
Candle Sticks
Timeframe – 1 hr
Bollinger Band – Length 20 and StdDev 2.5
Bollinger Band – Length 20 and StdDev 2
RSI – Length 6
Stochastic Oscillators – 14,3,3
MACD – 8,21,5
Confirmation with indicators should be in same trend with candle stick trend
1. RSI (For trend identification)
2. Stoch (Entry and Exit confirmations / Overbought and Oversold confirmations)
3. MACD (For trend identification with convergence/divergence)
Risk Reward Ratio : 1:3 and above or as per your risk appetite
Rules of the game :
Whenever candle stick crosses Std Dev 2 and touches/crosses Std Dev 2.5 above/below then we have to find the entry. Any candle after this should be used as entry point which reverses the previous candle trend. At the same time RSI, Stoch and MACD should also reverse from their respective over sold or over bought positions. Stoch will give first hint of reversal followed by RSI and MACD. If RSI is at 20 or 80 (extremes) then it’s a perfect setup and find the reversal trend along with Candle sticks for entry. If RSI is not at extremes but at 30/40 and 60/70 levels then the setup can work but may not be so accurate, this gives scope for less RR. Stop loss should be the candle stick (candle stick which crossed) high or low (sell/buy respectively) or below the Std dev 2.5 band which ever are nearer or as per your risk appetite.
Take profit : First target will be middle band, Second target will be other end once candle sticks touches Std 2 or take profit @ 1:3 or when Stoch blue line touches red line and reverses or when MACD blue line touches red line and reverses or as per the risk appetite.
Avoid when :
>Confluence of candlesticks trend with RSI/Stoch/MACD is missing (all should be in following same trend path)
>RSI is in between 40 to 60 range
>If Candle stick do not touch Std dev 2.5 band and reverses
>If entry candle sticks are near to the middle line of the Bollinger band as room for uptrend is less
>If you do not understand the strategy
>If you do not understand how candle sticks are behaving
>If candle stick pattern is not respecting high and low lines marked as mentioned above
>If there is no confluence of the setup with indicators
>When calculated SL is way high due to the formed candle stick (large or big candle stick, if taking entry after this candle)
>When there is no confidence on the setup
>Fear of Missing Out
>In a sideways market, hitting of SL will be high
Story behind this setup : Trend will be in between Bollinger band upper and lower bands and entry is sought whenever trend reverses after touching Stddev 2.5 upper or lower band. As per Empirical Rule 95% of Data will fall within 2 Standard Deviation 99% of Data will fall within 2.5 Standard Deviation, reversal happens after this and we try to take confluence with other indicators help for entry and exit. Sometimes an exit can also trigger entry for next trade if the setup gives confluence with mentioned parameters above.
Stop Loss : Stop loss is the key here, please do not enter unless you understand how to calculate stop loss. Calculate Stop loss first before entry and it should be below Std dev 2.5 or just below the previous candle of the entry candle whichever is acceptable loss or as per your risk appetite.
Please do let me know if you have any questions would be happy to respond.
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Disclaimer : This analysis/strategy is only for educational purpose and not be considered as any trading idea/tip. Please consult your financial advisor before you take any trade and we are no way responsible for your profits/losses. Thank you!
