You may know that most of the Forex technical indicators can give false trading signals. One of the main targets for any forex trading strategy is to reduce the quantity of such false signals. How can we do that? The answer is simple - we can change the settings, despite the fact that the most efficient parameters are those which set as default by the indicator authors. In this case we are talking about enraging some of the parameters in order to make an additional filtration of false signals. Three different technical indicators are used in this easy forex trading strategy guide. All of them have to be considered separately in order to maximize the result depending on the importance of each indicator.
CCI (commodity channel index) with settings 200 and -200
Default settings for CCI are usually 100 and -100 levels, but we double up the default parameters to avoid the false signals to happen. So, the CCI indicator can give less forex trading signals, especially those which work out in the default range but would not occur in the range of 200 to -200. This allows us to get this indicator working more effectively.
Bollinger Bands with default settings
Bollinger bands is one of the most popular channel forex indicators. Most of the easy forex trading strategies based on this indicator use the channel breakout. which does not guarantee the price reversal though. So, we do not make any changes to the default settings as we consider BB to use as a secondary in this particular simple forex trading strategy.
Stoch (stochastic oscillator) with settings 5,3,3
The Stochastic oscillator works with overbought zone (80) and oversold zone (20) and it is a fast indicator. So, our target is to use the advantages of its’ fast reaction to any changes in price momentum, as we are looking for reversal patterns.
Forex trading strategy “Spring” conditions:
- LONG position rules;
- CCI is coming back up from -200 level;
- The price is below than lower Bollinger Bands line;
- Stochastic lines cross each other in oversold zone (below 20);
- We open LONG position.
SHORT position rules:
- CCI is coming back down from 200 level;
- The price is above the higher Bollinger Bands line;
- Stochastic lines cross each other in overbought zone (above 80);
- We open SHORT position.
Any time frame, starting from 5 minutes, could be chosen for one of the easiest forex trading strategies for beginners “Spring”. The longer timeframe you choose the more precise forex trading signals you get. And at the same time, the shorter timeframe you set, the more quantity of trading signals you get as the result.
Regarding the stop-loss and take-profit orders, they have to be set depending on two factors. First is the timeframe you trade on. And the second factor is your money management rules. You can know more how to be more profitable trading forex by following our further publications.
You have to be aware of using forex reversal trading strategy in the period of major economic news as the reversal could not happen before or after such an event. When the market players expect an important economic report release, they do not have a lot of activity and the price stands still or is limited to a tight range, performing a side movement. When the release is published, the price could change sharply in both directions depending on the result of that release according to the market expectations. So both scenarios are not suitable for reversal forex trading strategy.