Submitted by Edward Revy on July 15, 2007 — 07:29.

Were you told not to hunt for tops and bottoms when trading.

Why not break the rules when you can tell with an astonishing precision where the next top or bottom will be?

Here is one very nice and accurate trading system that could make your Forex trading entirely about hitting the right spots.

Trading setup:

Time frames: 5, 15, 30 minutes, 1 hour, 3 hour and 1 day – just one chart at the time will be used.

In case you do not have the exact time frames, simply substitute them with the closest ones. For example, 15 min can be changed to 10 min, 3 hour can be changed to 4 hour etc.

20 EMA and 40 EMA on all time frames

ADX 14 for all time frames.

Currency pairs: any.

The idea behind this Forex method is that ADX helps to measure the strength of the trend while 20 EMA acts as a flexible support-resistance line.

Trading rules:

Our first goal is to find the chart with ADX being over 30 mark, which will indicate a strong trend. We start with a daily chart and continue the search moving downwards (3 hour, 1 hour, 30 min, 15 min, 5 min) until we find the chart with ADX being currently over 30.

Note: In case several time frames meet requirements for ADX, we opt for the highest time frame. That’s why we start with the highest frame first.

Having chosen the time frame, we are ready to trade the first bounce off of the 20 EMA. We set a limit order close to 20 EMA accordingly: in a downtrend we expect the price to touch 20 EMA from below, then reverse and move down, in an uptrend – from above, reverse and move up.

Always make sure that at the moment of entry you are using the highest time frame with ADX currently over 30. Only then you can expect the price to obey 20 EMA.

That’s it.

Initial Stop loss order is placed above (when short) / below (long) the 40 EMA.

Important note: once in the trade stay with the time frame used for entry.

Risks: looking at the charts traders will find that at times the price reverses exactly at 20 EMA, but sometimes it moves even further before making a u-turn. Always be ready to leave some room for the price to make this turn, that’s why we suggest using 40 EMA for stops.

Exit rules:

Option 1: Use Bollinger Band with settings (18, 2) for all time frames. Set a profit target at the outside band. Move your profit target as the Band expands or narrows.

Option 2: For traders familiar with Fibonacci tool, profit target can be set to 1.618 expansion level. AB Swing for Fibonacci should be found from the earlier price moves and the actual point of entry should be considered as point C or a retracement.

Option 3: Once the price clearly moves in your favor move the stop below/above (Long/Short trading) the previous price bar. Adjust the stop with each new price bar. Trade until stopped.

Also exit always if ADX goes below 30 on the time frame which was used for entry.

That’s it. Test it and see that it works remarkably well.

P.S. Accuracy of this strategy is quite difficult to backtest/visualize using historical data. If you decide to do so, make sure you do it right and know what time frame should have been chosen for trading at any given time. The easiest way to analyze current strategy performance is by running it in real time.

Happy trading!

Edward Revy,

forex-strategies-revealed.com/