1) I use the 4hr chart, I find it’s more reliable (less noise) trading the higher timeframes…while still giving you a few good setups each week.
2) Plot a 20 lwma in whatever color you want (I use magenta).
3) Use a macd indicator with a histogram (I’ll attach the one I found on ForexFactory at the bottom of this post). The standard settings and double them, so (24,52,18).
Looking for Trades is as simple as 1-2-3…
1) PRICE ACTION…basically I look to follow the current trend (higher highs & higher lows = uptrend while lower lows & lower highs = downtrend)…if the current(short term) trend matches up with the pairs overall trend…that’s the best setup! Another thing with price action is just looking for simple candle patterns: engulfing, pinbar, tweezers, etc…that happen at prior support & resistance areas. lastly, just drawing in some simple trendlines and/or channels
2) MOVING AVERAGES…you want to trade at/near the 20 moving average ….the best setup is when you get a Price Action(PA) setup and the moving average is heading in the same direction(up for longs, down for shorts).
****the first version of this method had 3 moving averages on the chart…I have since modified and simplified it down to only 1…the 20lwma****
3) MACD HISTOGRAM…you want the macd histogram to be lined up and heading in the same direction as your PA and MA. This helps me see where momentum is going along with the first two guidelines. The best setups are when the histogram is on the correct side of the zero line( above the zero line for longs and below the zero line for shorts).
That’s really it…it’s really just 1-2-3…PA, MA, MACD HISTOGRAM. Hopefully I didn’t confuse you too much so far and now lets get to some examples…
Pairs I Use
This method has been tested on GU, EU, EJ, GJ, AU, pairs…I have NOT tested it on any others. And my best results have come from GU,EU, EJ. GJ can get a bit wild at times if you can stomach big swings/drawdown(I can’t, so I avoid it). AU is pretty decent, but the first three have been very reliable and I tend to trade them most often. I’ve been watching the UJ too…but this pair is tricky because some weeks it barely moves at all…other weeks it’s great to trade!
( word of caution…this is what works for me…please feel free to adjust your Target Prices and Stoplosses for what suits you).
1) I set an initial emergency stop loss of 100pips in case the market does something weird like surprise news from a country or if you lose power for a while…at least you won’t blow your account.
2) My Target price is set at 75pips for pairs with higher Average Daily Ranges(GU, EJ, GJ) and 50pips for pairs with smaller ADR’s(EU, AU)! I often see price run for 70-100pips or more on good setups…but right now, I’m looking for more consistent winners. This may be adjusted with further forward testing.
3) You should exit your trade on the first candle that closes on the opposite side of your entry candle if your Target Price has not been hit. With the proper entry, your losses should be around 60pips or less.
4) Stay away from HUGE candles…typically you want to enter on candles that are 50pips or less…give or take a few pips.
As you can see, with a proper entry…my risk-reward is roughly 1:1!
Attached below is the template I use for my MT4 charts.
Example Trades Image: