As we already know, using only one indicator to trade doesn’t guarantee long-term profits, especially in such a volatile market as Forex. Instead, experienced traders tend to use two or more beacons, including at least one lagging one which determines market trends and signals, and one leading confirming whether the signals are reliable or not. If you are stuck choosing your own indicator set, then in this article, we would like to introduce to you an effective, general-purpose and easy-to-use trading system – the “three in a row”.
The easy-to-use factor of this strategy is that it is composed of the most famous indicators, including Exponential Moving Average (EMA), Relative Strength Index (RSI) and Stochastic Oscillator. The “three in a row” consists of two EMAs with different period settings (5 days and 10 days), one default RSI and one Stochastic. Like a standard technique of every professional trader, the EMA lines here play as lagging indicators and are responsible for detecting market trending conditions and signals which are tradable, while the RSI and Stochastic – the leading indicators – are applied to circumstantiate valid trading opportunities.
Some people may ask why there are two different leading indicators in one system. Well, normally, only one leading beacon combined with one lagging is sufficient. However, RSI and Stochastic Oscillator have their own specific pros and cons. For example, the Stochastic is more sensitive than the RSI and works very effectively in stable range-bound markets, while the RSI, due to its slower reaction, spots more accuracy trading occasions in uncertain ranging conditions. Therefore, these indicators make a perfect combination, enabling traders to be flexible with market changes.
After a year being tested by us, this technique has generated +1500 pips with a win-rate of about 82%.
How to use the “three in a row” system to trade Forex
Unlike normal Forex strategies, this tool is suitable for all time frames. However, we suggest using it on the 15-minute chart. After installing the required indicators found easily in MT4, you have to monitor the EMAs to spot trends and signals, then use the RSI and Stochastic to make sure about the stability of them.
A bullish opportunity is spotted when:
The EMA (5) turns above the EMA (10).
The RSI line stays above 50 but below 70.
Stochastic lines are in the channel 20-80 and tend to move upwards.
Conversely, a bearish occasion is defined when:
The EMA (5) crosses below the EMA (10).
The RSI line stays below 50 but above 30.
Stochastic lines are in the channel 20-80 and tend to direct downwards.
Only one position should be entered at a time. The stop-loss level should be set of 25 pips, while the take-profit could be up to 40 pips, or when the leading indicators push into overbought/oversold territory.
Pros and cons of the system
Engendering highly accurate signals by strict checking rules.
Allowing traders to profit from various market conditions.
Requiring traders to continually observe charts.
The “three in a row” is a very effective strategy, engendering highly reliable trading opportunities for Forex traders thanks to its strict checking rules. We believe that sticking to this tool will help generate substantial returns. Nevertheless, never forget that there is no 100% winning system. You will have to combine this technique with risk control and psychological management knowledge when trading to minimize the risk.
FinmaxFX is one of NAFD (National Association of Forex Dealers) initiators.
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