I had my ups and downs trading forex for more than two years. It all becomes stable only when I finally decided to create a trading plan.
This trading plan covers all the rules that I should abide and follow in order for me to become successful at this endeavor.
One specific rule that I follow is my trading strategy. It took months before I derived the strategy that I am currently using. But as time goes by, I noticed something about the chart patterns and I've come up with a new strategy with the use of the RSI indicator.
I am not replacing my old strategy, I am just adding a new strategy and currently I am still in the process of knowing its winning probability.
So far the strategy is just very simple and can be learned by beginning forex trader almost instantly.
To give an example about my strategy I will be showing here my last trade in the GBPCAD in the 4 hour time frame.
I forgot to mention that this strategy, I only tested it in the 4 hour time frame. I love the 4 hour time frame because its just gives me good set ups and time allowance to join these set ups before the price moves towards my desired direction.
Enough with the chitchat lets go on now to my winning trade using my new strategy.
MY SIMPLE STRATEGY IN THE 4 HOUR TIME FRAME USING THE RSI INDICATOR
First thing to do with this strategy is to of course display your RSI Indicator in the chart. Usually the RSI indicator will appear at the bottom of the chart.
With this strategy, I am using the default setting of the RSI.
The logic behind this strategy is just very simple. All you have to do is to plot a support and/or resistance in the RSI chart together with the price chart.
As you can see in the image above, I've already plotted a resistance in the RSI graph and also in the price chart as indicated with the red line.
Notice here that in the RSI graph, the resistance line that I plotted was going downwards. But in the price chart, the resistance line that I plotted was going up.
There's something fishy here. Because supposed to be, the RSI graph should mimic the movement of the price chart. But in this case its not.
The thing that happened here is often called by traders as a divergence set up. There has been a divergence between the RSI graph and the price chart.
If you found set ups like this, then its good to trade the direction of what the RSI Indicator is showing us and that direction is a bearish movement.
SHORT ENTRY USING THE RSI STRATEGY
- As you can see in the chart below, I entered the trade immediately.
- My stop loss placement would then be placed at the top of the resistance line.
- My profit target is set in the support line area.
So my trade set up now would look like this below.
The trade is already executed and all I had to do is to wait and let the market do its thing.
Finally, our profit target was hit. It took days before the price reach my profit target.
This trade really did become a marathon to me because the price was really all over the place but luckily I just held on to my position.
Notice below that the price tried to break and tested again the resistance in the RSI Indicator before it burst downwards.
This moment right here is the hardest moments of all traders. Its really tough to watch the price coming back against you that is why I keep myself away from the screen to avoid being emotional.
If you trust your strategy, then there is no need to panic even if the price came back to breakeven point.
This trade gave me almost a 1:4 risk to reward ratio.. Another profitable trade for me using a new strategy.
The strategy is still under probation shall I say. But so far so good.
In my next trades, I have decided to increase my risk to 2% to 3% depending on the set up. I think I am ready and hopefully I would be able to handle the psychology and emotion behind it.
If you wish to watch the live video of this trade you can go to this link and watch it :)