Here is a simple trading strategy which uses 2 of the most popular indicators which are found on almost every trading platform. Even though it is a simple trading strategy, it can be quite profitable if you use it wisely. In this strategy we will be using 4 EMA and 1 RSI. We are going to use this strategy on trending pairs like EURUSD or GBPUSD. Other pairs is supported as well, as long as they are volatile. I suggest you use this strategy on timeframes starting from H1 and above. On small timeframes, you will be getting lots of fake signals which are not tradable at all.
Setup your charts as follows:
1. Place EMA 80 (Red), EMA 21(Blue), EMA 13 (Purple) and EMA 5 (Yellow)
2. Place RSI 21 on the chart with a level set at 50.
You can download the template at the end of this post and apply it to any chart and get started directly without having to setup the charts manually.
A little word about these moving averages. The EMA 80 is the strongest in this system and it indicates the long term trend direction of the pair. When price goes above EMA 80, it implies and uptrend and when it is below the EMA 80, it implies a down trend. The EMAs 21 and 13 gives us the current tredn direction. If the EMA 13 is above the EMA 21, the current trend is bullish and if the opposite happens, the current trend is bearish. The RSI 21 value below 50 indicates a bullish market while under 50 indicates a bearish market. These are the basics of this system and should be well understood. It is a system which is designed to take advantage of a trend and ride it. It would not work in ranging markets. Keep this in mind.
When to BUY
We open a BUY position when the following rules have been met by the system
1. EMA 5 crossed above a channel of EMA 13 and EMA 21 in a bullish market
2. RSI 21 goes above 50
3. Both EMA 21 and EMA 13 are above EMA 80
These are the buy entry rules that we should be watching for our strategy. Now we need to look at the Exit for the buy positions.
We close our BUY positions when:
-EITHER EMA 5 crossed below EMA 13 and EMA 21
-OR when the RSI goes below 50
If any of these above rules are met, we should close our long positions immediately.
As for the stoploss, since we are working with volatile pairs, we should not be having them too tight. Trades need space to breathe so place your stoploss to recent swing highs or lows.
Buy Trading Example
In this example above, we are going to buy the EURUSD and we are using the H1 chart. We see that the EMA 13 and the EMA21 are staying above the EMA80. This is a signal that the market is trending up. The EMA5 also stays above EMA 13 and EMA21. However, at the same time, we are seeing the RSI21 going above the 50 level, so we OPEN our long position and we buy EURUSD. We exited this trade when the EMA5 cuts below the EMA13 and EMA21 and we booked around 200pips on this one.
When to SELL
We open a SELL position when the following rules have been met by the system
1. EMA 5 crossed below a channel of EMA 13 and EMA 21 in a bearish market
2. RSI 21 goes below 50
3. Both EMA 21 and EMA 13 are below EMA 80
These are the sell entry rules that we should be watching for our strategy. As you might have noticed, these rules are the exact opposite on the buy rules. Now we need to look at the Exit for the short positions.
We close our SELL positions when:
-EITHER EMA 5 crossed above EMA 13 and EMA 21
-OR when the RSI goes above 50
If any of these above rules are met, we should close our shorts positions immediately. Again, we see that the sell exit rules are the exact opposite of the buy exit rules.
As for the stoploss, the recommendations are the same as said above. You should let the trade breathe and not tighen your stoploss too much.
Sell Trading Example
In the example above, we are going to sell the EURUSD and we are using the H1 timeframe. We can see that the EMA 13 and EMA21 are staying below the EMA80. This signal is an indication that we have a downtrend in progress. The EMA5 also stays below the EMA13 and EMA21. At the same time, we see that the RSI also dropped below the 50 level thus confirming our downtrend, so we open our short position right here. This signal turned out to be a good one if we had taken it, we would have booked around 200pips.
So, as you can see for yourself, this system can have huge potential when is has the right market conditions to work with. Go on, open a demo account and start your practice. Good luck. Hope to hear back.