My first ever Forex strategy - daily 10 SMA, what do you think?

Beginner Questions
1

Hi All,

This is my first ever post on babypips!

I have been learning about Forex trading for about 8-9 months. I have demo traded and live traded and so far have not made any money. I do enjoy Forex trading and the challenges it brings - Forex trading should be easy but after hours and hours of trying different strategies, I have still not created a profitable system.

So here is my first strategy that I am posting for your feedback. Please help and tell me how I can improve or if the system is any good…!

I plan to stick to only daily charts for the start of my Forex trading journey. I work full time and do not find it practical to sit at the computer screen waiting for the right set up on 5 minutes, 1 hour or 4 hour charts.

So here is my simple strategy:

Daily chart

Trading Pairs: AUDUSD, EURUSD, GBPUSD, NDZUSD, USDCAD, USDCHF, USDJPY (low spreads)

Indicators: 10SMA (Shift 2 - this is very important) and ATR 14

Entry rule - Long trade: When BULLISH candle closes above 10 SMA AND ATR is SLANTING UP. I would set a buy stop above the high of the last candle. I would check the current ATR value and use 20% of that value as the distance from the high of the last candle for the buy stop entry.

For example, if ATR value is 50, I would set buy stop 10 pips away from the high of the last candle.

Entry rule - Short trade: Exactly the same as long trade but the opposite. When BEARISH candle closes below 10 SMA and ATR is SLANTING UP. I would set sell stop below the low of the last candle. Using 20% of the current ATR value as described above.

With this strategy it is very important that ATR is slanting up, if it is heading down for long or short trade then I do not enter the trade. I would wait for ATR to head upwards before entering. A lot of times if ATR is not slanting up when price closes above or below 10 SMA, it can turn back the opposite way and I do not enter the trade.

Stop lost: The low or high of the last candle. I am not planning to adjust stop lost during the trade or set trailing stop. However, if you think I should be doing something different here please let me know.

Take Profit: I would draw trend lines from the last higher highs or lower lows and set the take profit on those lines. Now, a lot of time price may not reach this level. I am usually happy to take profit when price reaches about 100 pips. Once it has reached about 100 pips if candle patterns look like it is reversing in the opposite direction. I just close trade and happy with whatever profit I achieve.

Here is an example of entry, stop lost and take profit with this system. In this example is USDCAD pair:

TradeexampleUSDCAD.jpg700×427 47.4 KB

Looking forward to your feedback…!

2

hi, thx for your strategy. Just one thing: can you go a little deeper into how you determine your take-profit level? Also regarding the 10SMA, is it applied to ‘close’ or anything else? THX

3

Hi Zhangshou,

I don’t apply the 10 SMA to close or anything else although I understand that you could wait for price to reach 10 SMA then exit trade. I find that I would have to be in the trade for a lot longer than it suits me and it may not necessary achieve more profit. But I am open to suggestions as I am new to Forex trading.

Here is an example of a live trade I entered on 3 July. I have drawn trend lines as my take profit level. I think drawing trend lines is very subjective and I am still very much learning about how to draw them properly. So any tips on this would also be much appreciated.

4

Two of the same image loaded up at the same time. Just ignore one of them.

5

you need test on demo account in a long time. some stategy can be make money but it depend on lucky. we will lose more money in other time

6

I’m not an expert when it comes to indicators. But I’ve tried applying SMA’s and EMA’s on several different pairs and found out it worked perfectly well on GBPUSD as it was trending and still is. However on pairs that are more volatile or in a range it didn’t seem to matter at all. I’ve heard people use SMAs and EMAs as dynamic support and resistance. So I guess it makes sense to apply them on a pair that is trending.

What works for some pairs may not work across the board for every pair as each pair has its own unique characteristics and some range some trend. So what works on a particular pair that is trending might not work as well for some that is ranging.

And I also suggest that you focus on as few pairs as you can since you’re just starting and still haven’t formed a profitable system yet. Adding on in more pairs will only confuse you and bite up from you account since you won’t know what you will be doing at the first stages of your trading journey. And also as you’ll be testing a lot of strategies. You want to keep your account as long as you can and still learn and hopefully develop a profitable system.

7

Hi Buterfly,

I still demo trade but what I find with demo trading is that I tend to make money but when it comes to live trading the results are not always the same because stop lost gets hit or TP don’t get hit more often in live trading but not so much of this problem in demo. So this strategy I have demo traded for a month and it seems to work fine but now I just need to make sure I can do it live.

When I back test, I find that this strategy gives about 60-65% profitable trades. However, my back testing is done with a piece of paper, I just look back from since the beginning of this year and manually write down possible winners and losers. Not very precise but do not know how else to do it.

How do you think I can improve what I am doing?

8

Hi Rookie 39,

Yes I think this strategy can lose a lot when the market is ranging. I guess that is when most strategies fail. The strategy is to set the entry to trades above the high or low of the last candle + the distance based on using the 20% of the ATR rule that I mention above. I hope I will not enter ranging trades with this method. If the following candle is opposite to the trade, then I cancel the set up and start again. Also, if ATR is pointing down then I definitely do not enter trade because it will start to range. This is not full proof but works fairly successfully from manually back testing.

I think you are right. I should just try this on one pair at a time. In the past, I have always wanted to trade many pairs at the same time to keep myself busy at trading to keep it fun but then never achieve profitable end results.

9

hi, I was simply asking when you plot your 10sma on the chart, you select period:10, simple, shift:2 and applied to :??

hope it’s clear.

also, sorry if it’s something obvious, but how do you check current ATR value?

Shuo

10

Hi Zhangshou,

I apply the 10SMA shift 2 to the daily chart. Sorry is this what you are asking me?

For the ATR value I just put the mouse cursor over the day that I am checking the ATR value for and it just pops up with the ATR value for that day.

Hope this helps.

11

hi, you still don’t get me. What I mean is: when you select MA, a window will pop up asking to put in the parameters. Right? For this method, you will select ‘period 10, shift 2, method simple’, right? And the last option ‘applied to’, you will have choices like ‘close’, ‘high’,‘low’, ‘typical price’, etc. Now what do you select for this particular one?

Hope u get it this time!

Shuo

12

In my opinion you’re on the right track. The key with this type of strategy is patience and discipline. As you gain experience and confidence you become much better and plotting a stop loss and take profit targets and choosing profit between the two. Good Luck
Gp

13

Hi Shou, the setting for this is 10SMA shift 2 applied to close price. :slight_smile:

14

Thanks Gp this gives me encouragement to keep going with the strategy. Looking forward to trading next week.

15

The other thing with the SMA is just because this is giving you clear information on one time frame, or currency pair, doesn’t mean it will work on all pairs or time frames. It’s close, but sometimes you may have to move the period up or down a period or two, to get more accurate information. Especially if your entering on smaller time frames and different pairs.

16

hi, weddell:
thx for all your explanations! Now it’s becoming more clear to me. One other thing, have you tried this strategy on other timeframes and pairs? I’m assuming it will work on all timeframes and pairs (I stand to be corrected)?

Shuo

17

Hi Shou,

Yes it should work on other pairs and timeframes as Gp described above. However, I have decided that I will focus my Forex trading on a small number of pairs and only one time frame until I make continuous profits.

When I first started Forex I always tried to come up with a strategy that works on all pairs and would have 27 pairs for demo trading and some live trading. I think this is unproductive in the long run until I can make money from less pairs. But good luck to you, if you use the strategy let me know how it goes and any improvements you make to it.

18

Thanks for the advice Gp00053, my goal is to trade Forex for a living and when I do then I will start to work on lower time frames. I play around with a lot of the indicators but always come back to moving averages, ATR and Zig zag indicator. These three seems to be my favorite.

19

When I first started I only used indicators and only tech analysis, traded from Monday thrusday between london, new york overlap, closed any open trades at NY close and didn’t trade a pair for 30 minutes before any major or medium impact announcements. I signed up for every free course that I got offered. During one of those times a trader who in my opinion was selling more sizzle than steak, but he made one statement that caused me to have an aha moment and change the way I was trading, which not only gave me an immediate benefit, but long term benefits that are still coming in.

He said " a trade breaks down to 5 parts and you need to address them all. Trend, Momentum, Cycle, Support and Resistance. So since I felt he was absolutely correct, I searched and learned about indicators for each part. Results were I not only learned about moving averages, MACD, Stochastics and a ton of different indicators and how they applied to the 5 parts of the trade, I also learned about the 5 parts themselves. You can’t learn trend indicators without learning more and more about the trend.

I was taking in a free price action course when I had my next aha moment. Trader said “let the market come to you”. My next aha came from my butcher I asked him why he was reading his notes to make sausage when that’s what he was noted for. he said no matter what I do, I write it down because some times it’s better to be lucky than smart. If I make the perfect sausage, I want to know how I can keep doing it consistently. From that I realized the importance of having a daily diary of my trading or any business for that matter.

You will be happy you took the time to learn as much as you could in the beginning, especially if you plan on full time. I still use the zig zag, fibionacci, moving average indicators, not to analyze for me, but to confirm my analysis.

20

Hi GP,

Very interesting reply. The bit about the 5 parts really got me thinking a lot, especially the 3rd one “Cycle” something I have not even consider when trading. The trend, momentum support and resistance I guess are the ones I try to incorporate into the trading strategy but obviously without real understanding because I am just trading what the indicators tells me - rather than to “confirm my analysis” as you said. Hmm…I feel like there is an unbelievable amount of learning to do! I will start on cycle first because as I said did not even think about that until now.

The journal part is something I do but as I have decided to focus on one strategy only and one time frame and small number of pairs, I think the journal will become more effective as well, rather than keeping track of many strategies but not being effective on any.