Safe Simple Trading
Like me, you are looking for independent work where you will be your own boss, work when it suits you and only be accountable to yourself. Or you are looking to suppliment your day job.I offer you a simple strategy, which I use every day currency trading (Forex). I am presenting my strategy to you, after a several years of trial and error. The strategy is trend following, using hidden divergence, as trigger. I offer several tweaks that give me an over 70% win rate with a multi time frame approach. It can be traded on any time frame.I don't intend to inundate you with useless talk about my personal story, I will get straight to the point with my winning strategy. I'm not going to explain how Forex works or the basics of trading, there are countless sites that already do it.I hope this will be the start of an exciting adventure for you. Follow below for more.
Strategy Overview
Identifying discrepancies - A divergence is a situation where the oscillator behaves differently from the price of a currency pair or asset. These descrepacies are called divergences. I prefer hidden divergences because they signify movement in the direction of the trend, unlike regular divergences which signify a trend reversal, but I use both.
The strategy I propose is simple. It is broken down into 3 main points:1. We look for divergence between price and oscillator on the current time frame (CTF).2. Use of multiple time frames. When a divergence is detected in the CTF, we use the higher time frame (HTF) to check the trend and any impediments (support/resistance).3. We use the lower time frame (LTF) to optimize entry using regular divergence and confluence. Sometimes we initiate further entries based on defined signal and if the trend is still healthy. This technique is proposed by Gerald E. Greene in his book “ Turning losing trades into winners ”.We will look at a worked example but first let me show you my chart setup.
Chart Setup
Feel free to use your favorite oscillators and colors. This is only a guidline. Keep it simple, you only need 2 oscillators. I find that using 2 oscillators agree it is a stronger signal than just one.NB: An MT4 Metatrader template has been included in the 'Downloads' section.Indicators and settings:Relative strength index (RSI) - Period 10, applied to close.Stochastic - %K period 8, Slowing 3, %D period 3.Moving average of oscillator (aka OSMA or MACD histogram) - Fast EMA 8, Slow EMA 17, MACD SMA 9, applierd to close.Moving average exponential (aka EMA) - 5, 13, 50, 200, 800Basically I use the oscillators to detect divergence and the moving averages for trend direction.Note: I sometimes confirm the trend using the RSI indicator. When the RSI is above the 50% level on the current time frame and the time frame 4 to 6 periods higher AND the moving averages are in order, then it is a stronger trend. More on this later.
The Strategy
On March3, 2023 on the 4-hour time frame I saw hidden divergence. See below.There is hidden divergence on the stochasic and the RSI indicators. Prive is making lower lows but the oscillator is making higher highs.
When spotted you need to see what the higher time frame is showing. Using the table below, since our current time frame is the 4-hour, you can see that record '3.' shows that our higher time frame is the Daily.
| Higher time frame | Current time frame | Lower time frame |
|---|---|---|
| 1. Monthly window | Weekly window | 4-hour window |
| 2. Weekly window | Daily window | 1-hour window |
| 3. Daily window | 4-hour window | 15-minute window |
| 4. 4 hour window | 1-hour window | 5-minute window |
On the Daily time frame we see that the trend is down.
Why is is down, because the yellow 5 EMA has crossed the red 13EMA down and because the RSI is below 50% midline.
So, we have a sell on the 4-hour time frame and the daily is also pointing down.
Next we turn our attention to the lower time frame to confirm and optimize our entry.On the lower time frame, I like to confirm my trades with regular divergence and a break of structure.You ofter find regular divergence on the lower time frame. I also like to look for a break of structure, which means, in a downtrend lower lows and lower highs.NB: There is a section below on entries.
Note: Sometimes it is better to go to an even lower time frame to see hidden divergence and market structure better. You don't always get hidden divergence until you do zoom down to a smaller time frame.See below how it is clearer on the 30 minutes time frame.
ENTRY, STOP LOSS AND TAKE PROFITS
ENTRY - Once hidden divergence is identified, I like to drop down to a lower timeframe. I am looking for regular divergence on at least 2 of the oscillators. For safety, I then look for a break of structure to enter.STOP LOSS - Goes above/below the last swing point and preferably behind a moving average, or suppport/resistance.TARGETS - Fixed 1:2 (2 X the risk). Other ways are at next support/resistance or cross of the 5/13 EMA.See example below:
Additional entries & Fine tuning
Will be inserted December 2024
Hints and tips
A good trend following strategy requires a trend, a trigger, and a good risk to reward (entry, stop loss and take profit combined).The 200 (EMA or SMA) is a time tested trend indicator used by almost all traders. If the price is above it is in an uptrend, take only buys, if price is beneath, it is in a downtrend, take only sells, on any time frame. The complications occure when one time frame is pointing up and another is pointing down. What is the real trend? Always ensure you are trading in the direction of the higher time frame. My strategy relies on the next higher and next lower time frame are moving in the same direction.Mentioned in the strategy above. We need the moving averages in the correct order, hidden divergence and using a lower time frame regular divergence.The take profit should be to at least the previous low in a down trend or the previous high in an up trend. See below.
If you use a stochastic or an RSI for hidden divergence, the stongest signal is where the oscillator pulls back to the extreeme of the scale.On a still lower time frame, you could enter with each reset/pull back of the oscillator, if you want to stack entries.
DOWNLOADS
MT4 Template:
https://drive.google.com/file/d/1h9PH3CfEULlZiG9NnGuDH8NdZiSJjFdT/view?usp=sharingMT4 Multi time frame RSI:
https://drive.google.com/file/d/1mDHDBPXRqH7y2cfJs5LNQKbx9iinPSU7/view?usp=sharingStrategy A template:
https://drive.google.com/file/d/1Kq0iBHzsvDQGYrm7JXSBSJzu3Q7g7y5h/view?usp=sharing
Money Management
This topic is perhaps the most important in the field of trading. When you have just bought or sold a currency pair, it is because you have made a diagnosis by following the three steps that I suggest to you and which gives you strong chances of cumulative gain in the transaction zone, but at the condition of properly managing the output each time.There are several ways to manage a trade, but I offer you one that is simple. Here are the main points:1) Always use a stop loss. When you are about to buy or sell, locate the spot on the chart that will close the trade if the price does not move in the direction you want. Generally I use the level of the last swing. It is called " resistance " when the trend is downward and " support " when it is upward.The distance between the buy level and the stop loss gives the amount of pips you are willing to lose if the price does not go in the expected direction. Aim for a gain equal to or greater than your risk.2. Never risk more than 2% of your capital . If you do this, it will be more difficult to make up for your losses with less capital. If your risk is less than 2%, you can increase the number of prizes you stake to reach 2%. If you exceed 2%, decrease the number of lots accordingly. If you are already using the minimum number of lots allowed and the risk exceeds 2%, do not make the transaction. There will be many other opportunities that will present themselves. In a trading zone, each trade should not risk more than 2% of your capital.To calculate your lot size always use a lot size calculator like:
https://www.babypips.com/tools/position-size-calculator
or
https://www.myfxbook.com/forex-calculators/position-size
CONTACT DETAILS
E-Mail:
[email protected]Website:
safesimpletrading.com
© 2022-2024
Additional Strategies
Some really good strategies I am trading on separate accounts. Win rate 65+% with 1:2 Risk:Reward. All of these are trading with the trend, why swim upstream? As stated previously, you need a quantifiable trend, a trigger and a good risk to reward (stop loss/take profit). Up to you what suits your personality. Just make it your own, own it, let it be you ONE entry technique until mastered.
Strategy A:
Time frame H4 (4 hour)
20/50/200 EMA
Stochastic 8/3/3
Multi time frame RSI with period 8, Daily and Weekly (See 'Downloads').Wait for cross over of the 20/50 above/below the 200. Then take the first pullback of the stochastic which crosses the 50%. Especially good if you have hidden divergence as shown below.
