The Stochastic, EMA Cross FX Trading Strategy

This is a combo forex trading system from #CSFX that can be a valuable add to your arsenal of strategies. The stochastic oscillator is a momentum indicator that is mainly deployed by traders who’re searching for possible reversals in price actions. The indicator gauges momentum by linking the closing price to trading range over a specified time frame.

The Exponential Moving Average or EMA on the other hand is quite popular amongst traders and has become the core of most trading strategy. A simple strategy involving the EMAs will have a shorter-term EMA combined with a longer-term EMA, to give signals based on the short-term EMA’s aligning in relation to the longer-term EMA. This would form the core of this simple strategy.

Currency Pair: EUR/USD

Time Frame: 1 Hour

Indicators:

10 EMA (Yellow)

25 EMA (Blue)

50 EMA (Red)

200 EMA (dark Violet)

Stochastic (8, 3, 4)

Strategy


Long Entry:

This fairly simple strategy is designed to carter for intraday traders.

  1. Initiate a BUY entry when the fast stochastic line has crosses over the sow line upward.
  2. Not minding how long the stochastic line crossed over, you should watch out for the EMA crosses from the below pointing upwards i.e. when the 10 EMA crosses the 25 EMA and the 50 EMA, while the 25 EMA crosses the 50 EMA as well.
  3. The last condition before an entry is initiated is to wait for price to move past the 200 EMA. Once this conditions sets, it is a go for a clear BUY entry signal.

Stop Loss: Place your stop loss on the low of the previous candle.

Exit Strategy/Take Profit: The exit strategy is to watch the fast stochastic retrace from its upward move, head downward and cross the slow line from above.

Completely exit a position if the next bar closes below the low of previous bar. Else adopt a tight trailing stop loss and ride the bulls market.

Example:

EURUSD

It is important to avoid taking positions on this strategy if the cross over is triggered around a critical support or resistance level. The exact opposite of the same rule applies for SELL signal.

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