This trading strategy is design for beginners who have difficulties with understanding how to set-up profitable trades, how to set-up take profit, stop loss. You can apply this rules on your own strategy and make it more profitable. Good Luck!
For the strategy I’ve chosen two simple and familiar indicators (“Trend Line” and Stochastic) which I’ve modified for our Free Forex Trading Strategy. What we’re having here actually is a Manual Day Trading strategy that basically uses H1 Time Frame. It’s always a good idea to look at lesser and greater TFs, although it might seem confusing for beginners; if you’re an beginner it’s better not to look at the other Time Frames because it will make things more complicated. Enough said, all rules mentioned below are applied to H1 TF. The Best Currency Pairs for trading are EUR/USD and GBP/USD. This seems to be enough so far; let’s take a look at the chart and see how our setup looks like.
Free Forex Trading Strategy Indicators
In the graph we see Stochastic and Trend Line on chart. I’m assuming that you can figure this one out in terms of Trend Line trading? When the candle closes above Trend Line then it’s a chance for a buy, and when the candle closes under Trend Line then we’re in chance to sell. You should also know how to use the stochastic indicator. When the stochastic indicator level is under 20 it’s a chance for a buy, and when it’s above 80, it’s a chance for a sell. It would be a nice thing to know stochastic a bit more in detail; notice how the price reacts on level 50 etc.
Unfortunately that’s not all; these are just basic stuff – in further part of the article I’ll explain the strategy rules in detail.
How To Set Take Profit In Free Forex Trading Strategy?
Maybe it’s a bit unusual to discuss and define Take Profit in the early beginning, but in this case I found that to be crucial. Since the strategy is meant for the beginners and novice traders who don’t have good results in trading, the easiest way to determine Take Profit is to find a solution for double TP; in this way you’ll be profiting if you’re following the rules. In my trades I use a lot more complex approach (Price Action etc.). To determine a TP for beginners it’s necessary to make clear rules, because of the emotions and other factors that can easily contribute to a lot of negative trades.
Take Profit 1 = 20 pips
Take Profit 2 = 50 pips
Let us make an assumption that you’ve opened a position with 1 lot (1 pip = 10$); you’re first Take Profit (TP1) will be 0.7 (on the edge of +20 pips); if the price reached your TP1, you’re having a profit of 0.7 lots (about 140$), and there are 0.3 lots more in the game. If the price continues to reach to TP2 – 50 pips profit, you need to close the position of 0.3 lots (150$). So, your total profit would be 290$.
If your account is smaller one, you can open up the position with 0.3 lots; after 20 pips of profit you need to close 0.2 lots; when the price reaches 50 pips, you close the rest 0.1 lot.
I need to make things a bit more complicated; deciding how much would you close in first TP depends on lot of factors; sometimes, on first TP I close with 0.5 lots, and on second one with 0.5; sometimes I close 0.2 on the first one, and on the second one with 0.8 – this really depends on how certain you are that the price will keep the direction you’ve predicted. I think that it’s best to stick to the rules that I mentioned in the beginning; you first need to close a larger part of profit and keep a lesser part for TP2. This is because you’ll make a lot of bad estimations due to lack of experience which can lead to a bad result. One more thing, I use TP3 often, but that’s not necessary in this strategy – two Take Profits are enough. I really can’t go over these things because I consider it to be very useful for you in the future. We’ll discuss about Stop Loss a bit later.
Long and Short Position In Free Forex Trading Strategy
In Free Forex Trading Strategy Chart” chapter, I’ve described the way you open buy and sell positions. In further discussion I’ll describe the opening position rules more in detail, as well as explaining the exceptions and sideway trend.
Now we’ll analyze the figure from the beginning of this article in order to understand in which cases we’re going to open buy and sell positions. First condition to meet is the price on stochastic to be over 80 and dropping toward lower levels (sell signal) or it’s below level 20 and rising to the upper level (buy signal). When this condition is met, we need to close H1 candle below (sell signal) or above (buy signal) Trend Line Indicator.
So we’ve made the rules for sell and buy position openings:
Sell Signal: Stochastic is above level 80 and dropping to lower levels; the candle closes below Direction Line indicator.
Buy Signal: Stochastic is below level 20 and is rising to higher levels (buy signal); the candle closes above Trend Line indicator.
Let’s analyze our chart
After the stochastic signals us for the trade we have to wait for a candle to close above or below Direction Line – signal confirmation; then we can go to position opening.
Let us see how this is seen in reality. In the figure we see buy and sell signals according to rules of this strategy. (The figure)
In trades 1, 2, 3, 4, 5b, 7, 9 the price would reach both TP1 and TP2; the profit would be at its maximum, and we would earn 50 pips in each trade (+350 pips in total).
Profit: 2030$ – If you haven’t understood how we made 2030$ take a look at Take Profit chapter.
For trade 5a the price would reach TP1 (+20 pips) and then drop to minus (-20 to -40 pips).
In trade 6 we would also make a TP1 profit of +20 pips and the price would drop to 0 to -20 pips.
Let us note that in trades 5a and 6 we’d make a profit because according to strategy rules, on TP1 we’d close the greater part of profit (take a look at Take Profit chapter).
The example of trade 8 is the only trade example where you’d have a loss because the price would reach Stop Loss sooner than TP1 or TP2. Let us make an assumption that we’ve entered all position with 1 lot; as it is in this case. The loss is about -40 pips.
Profit: -400$
The sum of these trades is
2030 + 120 – 400 = 1750$ or
2030 + 60 – 400 = 1690$
I hope I’ve got all this clear to you, if not read Take Profit chapter once more; the chart shows clearly if the price would reach TP1 or TP2 after the signal.
The only part which is supposed NOT to be clear to you is the Stop Loss which will be further discussed.
Stop Loss Free Forex Trading Strategy
According to the rule, Take Profit is the hardest part of the every strategy – that’s the reason I’ve tried to make you a strategy with simple rules in order to take the best profit; although you can make even greater profits with this strategy if you’re experienced. But I suppose that if you’re reading this, you’re a beginner, so it’s best for you to stick to the rules.
Stop Loss is somewhat simple; according to rule it needs to be set above the candle which is before the one that made run through Direction Line. Take a look at the figure below.
Now, you’ve understood where the Stop Loss is being set. When the price reaches TP1, Stop Loss is being moved to the point on which the position was opened or few pips above. In this way loss prevention is being made. If the price reaches TP1 (20 pips) 0.7 lot is about to close (140$), Stop Loss signal is being moved to the point of position opening which makes a guaranteed profit; if the price goes back to the stop, 140$ profit was made anyways, and if it continues to rise to TP2 (50 pips) the profit would be even greater – the rest 0.3 lots (150$).
This strategy is best used for New York session. Advices such as double TP are recommended for usage in your own strategies. I hope I’ve helped you to understand the ways of creating Take Profits.
Side way – Free Forex Trading Strategy
Volatile Market is the worst case scenario for all types of strategy; this is the time when you definitely want to be next to your charts. In figure displayed below we have one such market example (see dates on chart); that is the only time when you need to keep yourself away from your charts. No matter the Volatile Market in figure, if you analyze all opportunities to sell and buy according to strategy rules your result will be 0 or +nn profit, which is more than good for any strategy in this situation on the market. Avoid trading during Volatile Market!
Continued Free Forex Trading Strategy
As I got close to finishing this article the price continued to go its way, so I thought that it will be nice to add another example with Free Forex Trading Strategy rules.
Advices on how to increase the strategy profit
After the Trend Line indicator confirms the signal, I usually wait for the price to go in opposite direction of our signal: then I open the position and in this way number of pips can be increased.
This strategy can be combined with all your techniques and indicators that proved to be profitable. Indicators such as: trendlines, pivot points, your Technical Analysis etc. will greatly increase your profits and chances for profitable trades.
Download Indicators and template for this strategy
