I do not consider myself an expert trader. I am far from being a professional. In the past three years, I burnt most of my money trading forex because I did not know what I was doing, and because I fell for a lot of scams. But I have a persistent personality, and when I start something I make it a point to finish.
In the past 6 months, I have been paper trading. Testing every strategy on this forum, on the internet… Buying and testing all the indicators you can imagine. It has taught me a lot and I have created 5 strategies that I think will help me (hopefully you too) to become profitable and make a living from Forex. I will never talk about money management, psychology and whatnot. Just the pure, mere strategies. In this post I will present to you my first strategy. It’s my least favorite of all of the 5, but I will build up the suspense until I reveal my ultimate strategy in my last and 5th post. This is one of my least favorite strategy because it is meant to scalp on M5. And any trader who respect himself, in my opinion, should not trade lower than H1, to avoid the noise and the spread disadvantage. The strategies I will give you later on will be much more powerful because they are based on H1, H4, and Daily, and obviously are meant to make some serious pips, without risk.
But, hey, scalping is fun sometimes, when nothing else comes up on the higher timeframe. So here it is. The strategy should work on most pairs, but I choose GBP/JPY when it comes to scalping because we all know that the moves are deeper and the pairs gives a lot of pips when it’s trending, or for that matter, even when it’s ranging. And today, there are a lot of good brokers that give you low spread on that pair. I trade it with a spread of 1.8, commissions included.
You will discover throughout my 5 strategies that one thing I learned, and you all need to know, is to always keep things simple. No need to cluster your screen with dozens of indicators that will either contradict each other, or take too long to line up and make you enter your trade too late, or at the best they will just all tell you the same thing. So this strategy is pure basics of technical analysis. It does not get simpler than that. A 5 year old could trade it.
Indicator: 50 EMA
Chart: GBP/JPY M5
Signal to Buy:
You all guessed! Candles cross over the 50EMA… BUT… a simple cross is not enough. We need to avoid ranging periods and whipsaws. So once a first candle has closed over the 50EMA, we will wait for a second candle to close over the EMA before we enter the trade. The second candles is very important for confirmation and needs to respect the very important following rule:
The candle has opened above the 50EMA, it has also closed above the 50 EMA, and it is very important that the second candle is also green. If the candles opened and closed about the 50 EMA, but it is red, do not enter the trade, as it’s a good sign that you may get stuck in a ranging market. Not so good for scalping.
Signal to Sell is just the opposite, of course…
Please, see below for a few examples of good trades.
Here another example that shows that this strategy works even better during trending hours.
The good thing about this strategy is that the win/lose ration is very favorable to us. That is because when you enter a trade on a false signal, you will know about it soon enough. Let me explain further. I do not put any SL. The reason is that 80%+ of the trades will be winners. But when they loose, you know soon enough because a signal in the opposite direction will be generated. At that moment you can close your loosing trade with a minimum loss. That’s because signals are always around the 50 EMA. So if you open a trade near the 50 EMA, and close it near the 50 EMA, you can’t really be that far from your entry price. See image below. In conclusion, with small loses and big wins, and an 80% success rate, you should be profitable!
Now, the golden question (to which I don’t have any good answer to give you) is when to exit the trade? It’s difficult, especially when scalping. I set a TP between 20 and 50, depending on the hour and the strength of the trend, and once I’m in profit i use a trailing stop. But to tell you the truth, I think the exit strategy is the reason why most traders fail. There are a lot of strategies that give you good entries, but very few that give you good exits, and that’s the key.
Anyway, I hope you like this strategy, but if it’s not for you, don’t despair, I have more tricks to come in my pocket. The next strategies will be more complex, more detailed, and I will talk more about TP and SL. For now let’s talk about this one.
Cheers
StevenSteven
