Simple trading strategy is really a simple trend following strategy. This strategy is really effective if properly applied. Since the simple trading strategy is used on daily chart, you may need to hold the trades for long period of time. Sometimes, it may take months to close your position from the market. And also because this is a longer term trading strategy it is quite riskier if you have little equity to trade with. You need to give space for the price to move. In simple trading strategy we have only three indicators used.
Simple Moving Average, period 150 (SMA 150)
Simple moving average is a very popular and effective tool to determine the trend of the market. Professional forex traders and analysts use it in various ways. There are many forex strategies that are based on the Moving averages. It is also used to figure out the support and resistance in the market. Simple moving average is simply calculated by adding the closing price of the security for a number of time periods and then dividing this total by the number of time periods. Those time periods in moving average plays vital role in its value. The moving averages which use fewer time periods tend to react quickly to the changes in the price while long term moving averages tend to react slowly to the market price action. So moving averages are called lagging indicator. It is formed only after the prices are determined in the market.
Stochastic Oscillator
The stochastic oscillator is a momentum indicator that uses support and resistance levels. The term stochastic refers the point of the current price in relation to its price range over the period of time. This technical tool attempts to predict the turning points by comparing the closing price of a security to its price range. Stochastic in market forecasting is generally used to see oversold and overbought conditions, momentum crossovers, and the trading the divergence. When the fast moving momentum crosses another slower moving momentum, it usually indicates that the current trend is changing.
Relative strength Index (RSI)
Relative strength index (RSI) falls under the category of momentum oscillator. It measures the velocity and magnitude of directional price movements. It is also used for knowing the strength of the current market trend, knowing the overbought and oversold territory and spotting the divergence on the chart.
Simple Trading Strategy details
Timeframe: Daily
Currency pair: Any
Buying condition using Simple Trading Strategy
- Major trend should be up i.e. SMA 150 should be below the price.
- Stochastic oscillator should be on or below the level of 20.
- RSI oscillator should be on or below the level of 30.
Selling condition using Simple Trading strategy
- Major trend should be down i.e. SMA 150 should be above the price.
- Stochastic oscillator should be on or above the level of 80.
- RSI oscillator should be on or above the level of 70.
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