Day trading Forex strategies -

Day trading Forex strategies -

There are hundreds of Forex strategies based on fundamental and technical analysis. Some traders prefer developing trading systems, based on one or two simple basic indicators, some traders like complex combined tools.

It is thought that multiple lines in the chart distract and over-charge traders, but I will prove that it is not so by practical examples. Form this review, you will learn about Spud stochastic thread theory, Rainbow range indicator, with controversial indicators like Alligator, AntiAlligator, and the strategies based on them.

When “multiple” is good. Examples of original strategies, redundant with indicators.

Tell me, how many indicators do you think are appropriate to trade a relatively successful intraday or long-term Forex strategy? I mean, can you, for example, apply three moving averages, but with different periods; or you must always have a set of compatible trend and forecasting indicators and confirming oscillators?

I am sure there won’t be a single answer, although I’d like to learn the readers’ opinions in the comments. From what I found on the Internet:

  • It makes no sense to trade only with one indicator, also applying patterns, important levels, and candlestick analysis. Such strategies are originally loss-making

  • An optimal combination of indicators includes lagging and leading ones. They form the golden mean.

  • Multiple indicators for intraday trading are bad for a few reasons.

  • It is simply useless. You can simultaneously attach stochastically, RSI, and other oscillators, and then get surprised, “These are all oscillators, indicating overbought and oversold zones, why are they sending different signals?” The answer is logical; a particular oscillator is selected for each market situation, so it is useless to combine them all.

  • It is difficult to analyze. The more different lines are in the chart, the more you need to focus (it's about intraday trading, where signals often appear), and the more you are likely to miss a signal or make an error. Many traders even prefer arrows and sound alerts, not to monitor the screen all the time. 

I think all these ideas are rather controversial, so, I again welcome the readers to discuss them in the comments. I myself will offer a few interesting tools and strategies based on them, which apply multiple basic indicators and I will prove by real examples with screenshots that strategies with multiple indicators can well be rather efficient.

Best Forex strategies with multiple indicators

Another question. Tell me how you see developing an indicator of technical analysis? After all, to develop it you need to not only have experience in trading, but also to understand mathematics and statistics, not to mention writing the code and correcting it. In fact, things are much easier.

There's never a new fashion but it's old. And the old was far not always developed for Forex. For example, a stochastic oscillator was designed to calculate the amount of lime in steelmaking.

It was applied to Forex trading much later. Many complex indicators are based on moving averages, stochastic, and so on. The strategies, presented below, are no exception.

1. Spud Stochastic Thread Theory

This trading system was offered on one of the trading forums in 2007. It is interesting because it offers a little unusual way to use a stochastic oscillator. Strategies with two oscillators are quite common.

But developers went even further, they decided to use multiple oscillators with different parameters of period %D, but with the default value of Slow and %К. Basic strategy applies 18 stochastic oscillators (of course you can change their number on your own), which should splice in a visual “rope”, finally forming its peak at the high or the low.

You need 18 stochastic %K lines from 6 to 24 (6, 7, 8...24) in the same timeframe. The principle is that in most cases the stochastic lines will form a web, that is be moving in different directions.

The recommended timeframes are 1H and 4H. You might apply M30, but not a shorter one, because you may fail to assess the market sentiment and mistake a signal.

All stochastic lines conventionally come in three groups:

  • Lower time frame stochastics LTFS (%К: 6-13);
  • Base Stochastic, the BS line with %К = 14;
  • Higher Time Frame Stochastics HTFS (%К: 15-24).
  • As a matter of fact, there can’t be an ideal rope, raveled by the lines. But, the thinner the rope is, the better.

In perfection, the lines should be as closely attached to each other as possible, without spaces, crossing and random moves. As experience proves, the rope starts forming one or two candlesticks before a peak appears.

Now, I’ll tell you how this Forex trading system works in practice.

For this strategy, we will use a modified complex indicator SpudStochastic. The indicator contains 8 Stochastic oscillators making a kind of stochastic rope.

They have the same values for Slow and period %D, but different values for %К. A signal to enter will be when all 8 lines converge into a single rope. When they are visually close to each other and are about to reverse, you may enter a trade.

To important moments:

The convergence point of the stochastic rope must be in the top or in the bottom zones. If the rope was formed above level 20 or below level 80 and then started to unravel, you don’t enter a trade.

When the rope is formed long before its peak (that is the lines go in parallel with a minimum space) suggests a strong trend. Even if SpudStochastic enters over sold or over-bought area, you’d better avoid entering.

Another tool, applied here is a kind of filter, a market analysis indicator Cycle Koufer Extremus. It is seldom used in strategies, but in this case, it is quite suitable. It identifies the end of trend waves and serves here as an additional complementary tool.

Requirements of the strategy:

The timeframe is M30. You’d better not set short intervals.
The asset is almost any currency except for exotic (exotic currencies are more suitable for long-term strategies). Continue reading

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