Crossover strategy

Putting it together


So now we have looked at three forex indicators, and how to use each one. But now we need to put it together. Before we do that, you must know that there are several things that make a complete strategy, not just entry points.

You need entry points, stop loss and an exit strategy for taking profits or cutting losses. In the online course, we discuss in more details how to run with profitable trades, including things like splitting the trade and more.

Set up the forex indicators

Open a fresh chart, preferably on a pair with a low spread like the EUR/USD or GBP/USD.

  1. Load up your favourite blank template, no indicators yet.
  2. Add a 5 EMA applied to the close, set this one as a red colour.
  3. Add a 10 EMA applied to the close, set this one as a blue colour.
  4. Add Stochastic with the input (10,3,3) slow and simple settings.
  5. Add MACD (12,26,9) with exponential histogram.

You should have something that looks like the below chart below



Rules for the system

The main trend is your friend. Switch your chart over to a 4 hour and identify the trend direction. If it’s moving short, then we will only be looking at short positions and visa versa for long positions. Entries will be taken on the 15m chart, so now that you’ve picked the direction, change the period to 15-minute chart.


To enter LONG positions

5 EMA must cross above the 10 EMA.

Stochastic must be headed up but NOT in overbought territory (over 80). MACD histogram must go from negative to positive OR be negative and start to increase in value. The Ideal is for MACD to have been negative and turning up.


To enter SHORT positions

5 EMA must cross below the 10 EMA.

Stochastic must be headed down but NOT in oversold territory (under 20). MACD histogram must go from positive to negative OR be positive and start to decrease in value. The ideal is for MACD to have been positive and turning down. Stop Loss. This is essentially a swing trading system, so stop losses should never be far from entry point. For long trades, you can set the stop loss at the most recent swing low, and for short trades at the most recent swing high. In a lot of cases, the stop loss will be quite close. If the recent swing is too far to keep your stop-loss within the parameters of your money management plan then you should not compromise your money management.


Exits

You can sit and watch the market and exit on candle information, or EMA crossover. Alternatively, you can set take profit at the next 50 or 00 level (ie 1.2550 or 1.2600). If your target is less than your stop loss, then the risk is not worth it.