Simple Trend Trading - SMA/EMA

Hello fellow traders!

My name is Thomas and today I wanted to share with you all my personal trading strategy. I did not invent this strategy, but I find it useful enough to share. Also, I’m unaware if it has already been posted to this forum.

With this strategy my win percentage is 90.12% [B][I][U]SO FAR[/U][/I][/B]. The market has been increasingly trendy lately!

73/81 trades won. Granted, I did double stack trades on some of these pairs. Meaning, if it went up in the direction I pursued, I would put down another trade. In contrast, if it went the wrong direction temporarily, I would place another order to take advantage of the FULL reversal.

13/16 trades won: This is accounting for the multiple trades in one session for a pair.
81.25%

For this strategy, I use the M5 time frame while trying to profit around 2 pips per trade. Sometimes, I will allow it to RUN.

Strategy:

This is nothing more than following Simple and Exponential moving averages. First off add these three lines to your chart:

SMA: 50 Period [Close]
EMA: 10 Period [Close]
EMA: 15 Period [Close]

Great! Now follow these rules:

On Bull Market:

  1. Make sure the SMA 50 is trending Upwards
  2. Wait for Candlestick to close BELOW two EMAs [Hint: [B]MUST CLOSE BELOW![/B]]
  3. Wait for Candlestick to rise again above the two EMAs
  4. Once candlestick closes ABOVE two EMA’s, Buy.

On Bear Market:

  1. Make sure the SMA 50 is trending Downwards
  2. Wait for Candlestick to close ABOVE two EMAs [Hint: [B]MUST CLOSE ABOVE![/B]]
  3. Wait for Candle stick to decrease again above the two EMAs
  4. Once candlestick closes BELOW two EMA’s, Sell.

DON’T:
[ul]
[li]Trade against Trend
[/li][li]Trade without a closing Candlestick
[/li][li]Trade when SMA 50 is flat
[/li][/ul]

1 Like

In effect, you’re entering in accordance with the direction of longer-term trends, after minor retracements: “buying the dips in an uptrend and selling the peaks in a downtrend” … which is certainly a pretty sound general principle. :cool:

Exactly! The fundamentals of this technique are correct. Just one minor stipulation. Whenever the market is ranging (80% of the time), then this strategy is not the best to utilize.

As Lexy says, this is a simple method but based on the right kind of sound principles. I would like to ask, though, if you are only seeking a few pips per trade where do you put your stops, back below the 2 MA’s for example? I guess a stop has to be at least 10 pips on a 5m TF so one cannot afford many stopouts?
Or how does it go for you?

Great question! I generally don’t utilize SLs unless I’m going away from the computer for a WHILE. If it’s a bullish trend, then yes I will put it on the previous lowest point below the 2 MAs. But sometimes, this can vary depending on how volatile the market is acting.

do you think this is something that works on larger time frames for those who don’t have the time to sit and watch the screen, obviously utilising SL’s and TP’s?

Hi Regan,

I’m starting H4 trading with this strategy…looks good. A helpful hint is to only make a qualifying trade when the 10/15 EMAs and 50 SMA are stacked in order…it may kill a few good trades, but helps to keep a trader out of false breakouts. BTW, this point seems to be less important on the M5 charts.

Thanks Thomas for this strategy. PLease keep us advised as to your progress! :59:

Hey @thomastaylor , can you give us some update of this strategy?

Hi @fxpsychopips
I think you will find that @thomastaylor has not been seen here since he posted the details of this strategy about 2.5 years ago.

But that does not necessarily mean that it is a bad strategy. As Lexys and I wrote at the time, this strategy is based on sound principles of entering on the reversal of a pullback in the direction of the underlying trend - and identifying that there is a trend at the time.

The basic concept here is very logical and, of course, there are many ways of wrapping up the core idea in a package using either MA’s or Price Action techniques - or combination thereof. My own approach to trading is based on this same core concept and has served me well for some decades now.

Regarding this particular “package”, i think the main MA pair of 10/15 is probably not bad, but I would prefer, say, 10/20.

Regarding TF, I would not try this on anything less than 1H - and 4H is probably even better.

This method provides good entry and re-entry signals in an ongoing trend, but the main challenge with this type of approach is, like with most strategies, when to get out, both with respect to targets and stop levels.

Personally, I do not see any great value in the SMA 50 here as it is quite slow with respect to the rapidity of the 10/15 pair - but don’t take my word for that! But if you are trying this method then you could back test or demo it using, say, 10/20 on 1H and a 40/80 pair as a proxy overlay for the 4H equivalent, as an alternative to the SMA 50 for identifying the underlying trend (or lack of!).

By way of example, here is a 1H chart of SP500 showing such an arrangement with 4 ringed entry/re-entry signals:

The yellow/blue ribbon is the 1H 10/20 pair and the blue/green ribbon is the 40/80 pair showing an underlying uptrend.

But just to show there is a downside as well, this is a recent stretch from the 30m EU - a nightmare if one was trying this approach here!:

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Thanks Manxx for your time and sharing your thoughts regarding the strategy. I just finished school of pipsology and started demo trading. I’m really enjoying it. Now I’m studying and testing different trading systems that are published in this community. Can you recommand some resources that might help me at this stage? Thanks again :grinning:

Good to hear that you are enjoying your forex journey! :slight_smile: That is perhaps more important than you might realise at this stage. There will be periods of frustration and despondency along the way as well as the thrills and the exuberations, so maintaining a positive attitude is essential in spite of the inevitable losses - or maybe rather learning to avoid the mistakes that often destroy a positive attitude.

I don’t think that just randomly trying out various strategies that you happen to come across is the most effective way of developing your approach. There are literally thousands of ways to trade a very wide range of instruments - and none of them work all the time.

So the most important factor to start with is actually: :point_right: YOU! :point_left:

You are the captain of your ship, and only you. So you need to be very clear about what kind of trader you want to be and in what kind of markets you want to trade. Also, your personal circumstances are going to constrain what you are able to do.

There is no point in just trading a demo with anything and everything you come across. You should be trying to trade it under conditions that are as close to your real situation and objectives as possible. IT is not so much a demo as a simulator of what you will eventually be doing in a live account.

For starters, it is worth evaluating how much time you have available to watch your charts and therefore whether you are likely to be able to intraday trade or whether daily charts would suit your timetable better.

Daytrading is not as easý as it might seem and is extremely demanding. It requires an intense concentration, strict discipline, an ability to trade contra to logic and decisive action. There is little logic behind intraday moves.

Longer term trading will be easier on the nerves but requires a psychology which is not adversely affected by having positions open for long periods, even days/weeks, while you are unable to watch them. It will also usually require more equity and wider stops to allow the move to develop in spite of interim volatility.

Another factor is whether you are happier setting trades on a “set and forget” basis, i.e. let them run to expiry one way or the other and rely on the R:R and success frequency to determine the overall result. Or to manage your trades as they evolve and move stops and targets depending on your ongoing assessment of market movements.

Or, of course, others seek EAs or automated trading programs…

I firmly believe there is truth in the adage that a good trader can make money even with a poor strategy but a poor trader will struggle to succeed even with the best strategy.

So I’d recommend that you concentrate next on systematically defining what kind of trader you are, developing your trading skills such as discipline and patience, risk assessment, equity management, and interpreting/navigating charts - and what are the personal and circumstantial constraints you need to observe.

Having done that, then maybe the next step might be to consider whether you prefer to work mainly with Price Action techniques or indicators, or a mixture of both, and to what extent you want to include fundamental analysis into your trade assessment.

Once you’ve got all that then I think you might just find that you are more than half way to having already developed your own trading strategy! :wink:

Edit to add: At the risk of boring you to tears before you’ve got going, another important consideration is whether you intend trading for income, partly or wholly, or to build your savings/equity, etc. This has quite a big impact on what kind of trading will suit your purposes. For example, carrying a position for a few months does not bring in a cash income even if it is winning - unless you close out portions of it along the way. Also, if you have a minus week then you are immediately under pressure to do double the next week, etc. if you have to live on it and pay the mortgage every month.

Trading can be extremely rewarding in many ways but as a full-time job it is really quite boring and stressful - and doesn’t carry a pension at the end of the day unless you have built that in yourself! :grin: I would always only recommend people to trade alongside a normal job and never to dump a normal job in search of a dream - a dream that so easily can turn into a total nightmare with little way out.

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thank you @Manxx for your advice. I really appreciate it :heart:

1 Like

You’re welcome mate! Enjoy your journey, take it steady, and remember to share it with us as you go! :+1:

2 Likes

What TF do you execute trade in

any news about ur tradings ?