This simple 5-step strategy will help you simplify your trading while making you consistent profits. Trading strategies do not need to be complicated to be extremely successful. As a matter of fact, simple trading strategies have proven over time to be more successful that very complex strategies. The reason for this paradox is that a simple strategy is easier to follow and easier to implement.
The 5 step strategy follow:
1. Check the trend using your daily chart. The chart should tell you whether the market is in an uptrend or a downtrend.
2. Once you know what the trend is, check for fundamental news releases that may affect your trade. Do not go to any of the following steps if there are any major news releases within 2 hours of your trade. You can get the current economic news from a financial market news feed of your choice.
3. If there are no news within 2 hours of your trade, execute your trading plan. For example, if the main trend is up, look for "buy" signals from your technical indicators and vice versa if the main trend is down.
4. This is the most important step and your decision on whether to enter a trade lies here. A common strategy is to use the crossing of 4 EMA (Exponential Moving Average) and 23 EMA on the 30 minute chart to decide whether to buy or sell. You should use other indicators like the weekly pivot, Stochastic, and MACD (Moving Average Convergence Divergence) to corroborate your trade. These indicators should also follow the trend and not look flat. You can further edge the trade to your favor by trading only during high liquidity sessions and confirming the trend by using a 4 hour chart. If all looks good, you are done!
5. The last step to manage your money by setting the trade with a tight stop loss of around 35 pips while using one of 2 methods of targeting profit. The first method is to use healthy risk to reward ratio of at least 1: 2 and the second is to use your daily support and resistance.
As you can see, a good trading strategy does not have to be complicated to be successful. By simplifying your trading strategy, your chances of successful trades increase significantly. This five step strategy should help you achieve consistent profits with your trading.