the daily chartist

Trading strategy using Stochastic Oscillator

published 3 years ago
EXAMPLE:EUR/USD H4

The Stochastic Oscillator shows where the market closes matched up with the price itself on a certain period of time. The indicator consists of two lines - a "fast" one and a "slow" one. The "fast" line is indicated with %K and the "slowest" with %D. %K is more sensitive in difference to %D against the price changes and %D play the role of a moving average for %K. Signals for buying or selling are generated from slow %D line. 

 The Stochastic Indicator is the best one when we try to find oversold or overbought conditions of the market and it is best used as a filter in combination with other indicators. For the purpose of this strategy review I will be using the standard levels of the indicator: 80 and 20 and for the periods (8,3,3) Though with everyone can experiment with different levels and periods for filtering out false or fake signals. This depends on the trader's personal style of his trading and his market views.

 These are the rules for generating a signal:

 Long position:

  1.  The %K and %D lines are crossing each other bellow the 20 level. The bar at which this event occurs we mark as a signal bar.
  2. We put a buy stop order above the maximum of the signal bar. When opening a position we put our stop loss order bellow the minimum of the signal bar or at the bar we've entered the market. 
  3. When the market goes in our direction, we move our stop loss at 5-10 pips bellow every minimum of every next local minimum or consolidation zones.
  4. We close our position when our stop loss is reached or we have a new crossing between %K and %D.

 Short position:

  1.  The %K and %D are crossing each other above the 80 level. The candle/bar at which this event occurs we mark as a signal candle/bar.
  2. We place a sell stop order bellow the minimum of the signal bar. When opening the position we put our stop loss above the maximum of the signal candle or at the candle we've entered the market.
  3. When the market goes in our direction, we move our stop loss at 5-10 pips above every next highs of the new local maximums or zones of consolidation.
  4. We close our position when our stop loss is activated or a new cross between %K and %D occurs.

 Example is EUR/USD 4H. As you can see for its own the stochastic and give a lot of fake or false signals, so try different periods for smoothening the two lines and test on demo. It can get a lot of messy with the oscillators so don't rely solely on them.

Trading strategy using Directional Movement Index - DMI

published 3 years ago
EXAMPLE:EUR/USD H4

DMI is one of the most efficient trend-signal-forming indicator and it is very effective and is often used by traders. It is designed by Wells Wilder. The DMI system consists of three lines - ADX, +DI and -DI, and it can be used to generate signals and as a filter for the trend. The DMI system has these conditions: 

  • Rising ADX - shows that the market has a nicely shaped direction of movement so that you can follow the trend.
  • Falling ADX - shows that the force of the trend weakens or there isn't a trend forming at all.
  • When ADX is above 20-25, we have a trend. When its values begin to decrease from levels above 40, the trend is weakening. 

 The DMI system generates the following signals:

 Long position:

  1. ADX is above 25 and it is rising.
  2. When +DI crosses -DI from bellow to above, the bar at which this event occurs, we mark as the signal bar.
  3. We place a buy stop order above the maximum of the signal bar.
  4. When opening a log position - we place our stop loss at 5-10 pips bellow the minimum value of the candle/bar where we open our position. 
  5. When the market goes in our direction, we move the top loss at 5-10 pips bellow the lowest  values of every new local minimum.
  6. We close our position when our stop loss is activated, crossing of the +DI and -DI or when a decreasing in the values of the ADX from levels above 40 occurs. 

 Short position:

  1. ADX is above 25 and it is rising.
  2. When -DI crosses +DI from bellow to above, the candle/bar at which this event occurs, we mark as a signal bar.
  3. We place our sell stop order bellow the low of the signal candle.
  4. When opening a short position, we place our stop loss at 5-10 pips above the highest point of the signal candle or the candle where we open our position.
  5. When the market starts running in our direction, we move our stop loss 5-10 pips above the highs of the new formed local maximums.
  6. We close our position when our stop loss is activated, crossing between -DI and +DI or a decrease in the values of the ADX from above 40.

 There can be a lot of noise between the main signals to buy or sell, so you can combine ADX with another trend indicator and as always try this strategy on demo, before going out with it live.

Trading strategy using Momentum

published 3 years ago
EXAMPLE:EUR/USD H4

The Momentum indicator measures the speed of change of the price and it is a leading indicator for any changes in the trend. When its value is greater than 100, this means tat the current price quote is higher from that from previous periods and the market is in a up trend. When its value is under 100,  this means that the current price quote is lower than the previous one from past periods and the market is in a down trend. Not only Momentum identifies a trend when reaching minimum and maximum values, Momentum also warns of overbought or oversold conditions. As a leading indicator, Momentum usually turns its direction before the price. In cases like this divergence occurs, which is one of the most assured warnings for a change in the movement.

 Momentum generates the following signals:

  • Crossover the 100 line from bottom to top for a buy signal, and from top to bottom for a sell signal. 
  • Trend lines - You can chart trend lines on the indicator and when they are breached (this is led by the indicator before the price) you can expect the same on the price chart.
  • Extreme values - as in the other oscillator indicators, the maximum values are a sign for an overbought market and the minimum for an oversold market. In Momentum in difference with RSI for example there isn't a bottom or top border for the minimum and maximum values, so thats why everyone has to determine which levels thinks are the minimum and maximum when studying the charts for a longer period of time.

 Long position conditions:

  1. The indicator crosses the 100 line after it has reached its low point and reversed its movement.
  2. The Candle/Bar which led to the crossing of the 100 level is marked as the signal candle and we place a buy stop order above its highest point.
  3. When opening a long position we place our stop loss at 5-10 pips below the lowest point of the signal candle or the candle we use as opening our position. This is an individual choice. 
  4. When the market goes in our favor, we place our stop loss at 5-10 pips bellow the lowest values of the formed local minimum extremes.

 Example is shown in the chart above. 

 Test the strategy on demo at first before going real. 

Trading strategy using Moving Averages

published 3 years ago
EXAMPLE:EUR/USD H1

Moving averages (MA) indicator is one of the simplest and useful technical indicators out there. They are known to everyone, experienced in the field of statistic of smoothening the trend. In the analysis in the financial markets they apply the same way, but their role is much more significant. Moving Averages are used as a trend line, which adapts to the dynamic changes in price and it is not like the standard trend line for capturing the full trend on its bottoms and tops. They are also used to track levels of resistance and support and are most effective when the trend is nicely shaped. A trend's correction most often ends when price reached an important MA. The most used periods are 5, 10, 20, 50, 100 and 200. MA 20 and MA 50 are recommended when searching levels of support and resistance. There are different kinds of moving averages - exponential and simple, smoothed and linear weighted, but for the purpose of this strategy review, I will be using one exponential MA (20).

 There are a lot of trading strategies, based on the principle of the MA - combined several MAs, MA and another indicator, MA and Fibonacci levels, crossover MA or MA crossover with the price. Here I will lay out a simple, but yet useful MA crossover strategy when MA is crossed by the price. For avoiding false signals or premature opening of a position, we will wait for a confirmation from the price itself. The candle or the bar (candle chart will be used here) in the period which the signal is generated, we will call signal candle. The position will be opened when the extremes of the signal bar are breached. This is a strategy used to follow the trend and the risk/award ratio will be a bigger. To avoid strong negative fallouts from a number of false signals or bad signals we can open positions of several lots. When we reach some amount of profit we can close a part of the position to guarantee some income and with the rest of the position to pursue better results as we move our stop loss levels in the direction of the market. 

 Rules of opening and closing are simple:

 Long position:

  1. We buy when price breaches the highest value of the candle, which has breached the EMA (exponential moving average) 20 (the signal candle/bar) from down towards up. We put our stop loss order at 3-5 pips bellow the lowest point of the signal candle. When price goes up we move the stop loss with the same 3-5 pips under the highest point of every next candle. 
  2. We close the position when price breaches again EMA 20 from top towards down or when our stop loss is reached.

 Short position:

  1. We sell when price breaches the lowest point of the candle which has breached the EMA 20 from top towards down. We put our 3-5 pips stop loss above the highest point of the signal candle. When price goes down, we move our stop loss (SL for short) 3-5 pips above the highest value on every next candle.
  2. We close the position when price breaches again EMA 20 from down towards up or when our SL is reached. 

 Give it a try on demo account before going with this strategy live.