Lazy Trade Forex Trading Strategy – Version 4

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Lazy Trade Forex Trading Strategy – Version 4

Trading is simple, but hard to do.

Many profitable traders make money out of the forex market using very simple techniques, whether it be indicator based, price action, or with the use of candlestick pattern. It is not the complexity of the strategy that makes a trader profitable, but instead it is about the ability to follow a strategy through its ups and downs. Of course, you should also factor in the actual profitability of the strategy itself.

Probably the most simple way to do trading is through the use of indicators. Indicators are like training wheels. It helps newbie traders get up and running in no time. This is because indicators could tell you when to get in or get out of the market. Price action or candlestick patterns on the other hand are a bit quite subjective. It doesn’t tell you exactly if it is time to enter the market or not. Let’s put it this way, in indicator trading, the indicator tells you what to do, while in price action, the trader becomes the indicator and decides what to do, whether to take a trade or not, or exit a trade or not.

To simplify things, we will explore a purely indicator-based strategy. All the decisions will be made based on what the indicator is telling us. This simplifies everything, thus it will be part of our Lazy Trade series of strategies.

The Setup: Lazy Trader 4

This strategy is a reversal strategy that takes some cues from mean reversion type of strategies. For this reason, we will be having two indicators. One will be to identify if the market is in an overbought or oversold condition, another to identify the potential reversal point coinciding with the overbought of oversold market condition.

To identify our overbought or oversold market condition, we will be using the good old Stochastic indicator. Just by looking at where the stochastics are, the indicator will tell us if the market is overbought or oversold. If the stochastics are above 80 then the market is said to be overbought. If the market is below 20 then the market is said to be oversold. With this strategy, we will be a little strict with this rule. Both stochastics should be beyond these numbers to be considered overbought or oversold, not just one of them. This would give us an indication that the move is just starting and has more room to move. It also tells us that there is still so much pressure for price to reverse. Also, for an oversold market entry, the fast stochastic should be above the slow stochastic. On an overbought market entry, the slow stochastic should be below the fast stochastic. This tells us that the reversal candle is very strong, being able to reverse the layering of the two stochastics, and that the reversal is already starting. All these should coincide on a single candle, which will be our entry signal.

For our entry signal, things will be much simpler. We will be using the Heiken Ashi indicator. We will enter a sell trade on an overbought market on the first red Heiken Ashi candle. On an oversold market, we will enter a buy trade on the first green Heiken Ashi candle.

Buy Entry:

  • Both stochastics should be below 20
  • The fast stochastic should be above the slow stochastic
  • Enter a buy market order on the close of the first green Heiken Ashi candle

Stop Loss: Set the stop loss on the low of the prior red Heiken Ashi candle or the low of the current candle, whichever is lower

Exit: Close the trade on the close of a red Heiken Ashi candle

Sell Entry:

  • Both stochastics should be above 80
  • The fast stochastic should be below the slow stochastic
  • Enter a sell market order on the close of the first red Heiken Ashi candle

Stop Loss: Set the stop loss on the high of the prior red Heiken Ashi candle or the high of the current candle, whichever is higher

Exit: Close the trade on the close of a green Heiken Ashi candle

Conclusion

This strategy is, being a Heiken Ashi reversal strategy, is a derivative of crossover strategies. However, due to its restrictive rules, it would be somewhat higher probability than most crossover strategies, although most crossover strategies do seem to have low probabilities. However, it still retains the high reward-risk ratio that crossover strategies have.

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