The trend-following theory has never been boring as it lays the foundation of many effective trending systems which help traders collect substantial profits from financial markets. Today, we would like to continue the series of trading the market trend with a strategy composed of three popular built-in indicators –Exponential Moving Average (EMA), Relative Strength Index (RSI), and Average Directional Index (ADX).
As we already know, a Forex technical system is considered qualified when it contains both leading and lagging indicators. With our recommended strategy, the Exponential Moving Average (EMA) set of the period of 20 days is responsible for detecting market trends and trading signals. Meanwhile, it’s not hard to realize that the Relative Strength Index (RSI) with the setting of 25 days is used to confirm the reliability of the defined entries. Furthermore, this system becomes more interesting with the 14-period Average Directional Index (ADX) entering the team. As widely applied, this ADX will affirm the momentum of the detected trends, helping traders gather more accurate trading opportunities.
Forex is seen as the most volatile market because of its daily unpredictable fluctuations. Hence, using these three effective indicators together will make you a perfect filter eliminating effectively the jamming signals.
Having been tested by us for the last 15 months with over 200 signals, this strategy has so far brought more than 2000 profitable pips with the win-rate confirmed around 85%.
How to use the system to trade Forex
This technique works best on the 1-hour chart and could be applied to all currency pairs. After installing the built-in indicators in MetaTrader 4, you will have to observe the EMA (20) to identify tradable signals.
A bullish trading opportunity is spotted when:
Prices remain above the EMA (20).
The RSI line stays above 50 but below 70.
The ADX main line turns above the 20 level.
On the contrary, a bearish occasion is determined when:
Prices remain below the EMA (20).
The RSI line is below 50 but above 30.
The ADX main line breaks the 20 level to the upside.
There are some important entering rules when trading with this strategy as follows:
Only one position should be entered at a time.
You must wait for the candlestick to close before positioning any order.
The stop-loss level should be set of 30 pips, while the take-profit could be up to 50 pips.
When the RSI line trades into the overbought/oversold territory, the position should be exited.
Pros and cons of the system
This strategy has plenty of advantages. First, it’s user-friendly and is easily established. Secondly, with three indicators working together, the strategy generates highly accurate signals by strict checking rules. Finally, it allows traders to grab a series of market trends, helping engender plenty of profitable pips.
The only disadvantage of the system is that it requires traders to constantly monitor the platform to seek for trading occasions.
With a lot of advantages shown above, this system has proven to traders its effectiveness along with dozens of sublime benefits. But most importantly, it is based on the principles of the trend-trading theory, which will probably help traders profit from the currency market in the long run. Anyhow, please don’t forget that there is no technical strategy which can guarantee a 100% win-rate, therefore, let’s apply this technique strictly with risk controlling and psychological managing methods.