The strategy to be discussed is a strategy which seeks to identify trends which occur in a cycle. The time frame for this strategy is the minute time frame and the strategy can be used on any currency pair. This strategy is all based on finding and following the trend.
The Schaff indicator behaves in a way like an oscillator, identifying overbought and oversold conditions in the market. These scenarios are then used to trade price reversals. A modification of the simple overbought or oversold trade setup is the addition of the period exponential moving average, which is used by institutional traders as a very powerful support-resistance tool.
The Stochastics oscillator is used to add confirmation to the trade entry. The trade is therefore to trade a reversal of price action following oversold or overbought market conditions, and enter the trade when the price action is able to break through the period exponential moving average, which will serve as support for falling prices and resistance for rising prices. The long and short trades are described below. The long entry is made when the price action breaks above the EMA line with a slight pullback, following the satisfaction of the three entry pre-conditions stated above.
We can see the area where the price action broke the EMA line upwards brown circled area , in the presence of other entry parameters for the long trade. The stop loss is set a few pips below the EMA line. A broken resistance will turn into a support which then rejects any pullbacks below the EMA line.
Thus the stop loss can be made as tight as possible. The take profit point is not set when the trade is made. Rather, the trader can decide to close the trade manually when the price action reaches overbought areas Schaff indicator is at or above The short trade entry is made when the price action breaks above the EMA line with a slight pullback, following the satisfaction of the three entry pre-conditions stated above.
We can see the area where the price action broke the EMA line downwards purple circled area , in the presence of other entry parameters for the short trade. This trade did not take off immediately and it took a few candles before the price action decided to move down south. However, price action eventually moved down south and was able to deliver on the trade expectation.
The stop loss is set a few pips above the EMA line. This is because a broken support turns into a resistance and when the price action breaks below this line, a pullback will be rejected at this line, thus allowing the stop loss to be made tighter. Rather, the trader can decide to close the trade manually when the price action reaches oversold areas Schaff indicator is at or below Support and resistance trades allow for traders to place tight stops, leaving room for unlimited profit potential.
The ability of two momentum indicators to identify oversold and overbought market conditions will allow the trader to follow the trade reversals to their logical conclusion. Mail will not be published required. Leave a Reply Click here to cancel reply. Practice Trading at eToro Now! Best Forex Brokers Benefits of Trading with our BO Indicator:More...