Are you a losing trader? Have you been struggling to profit from the foreign exchange markets? Have you tried a number of strategies and each time you fail to make profits? If you’ve been losing your money to the market, then you’re not alone because I was once like you. A full time forex trader Jay Lakhani said, “Failure is a man who has not learnt from his blunders.” Also, Dale Carnegie said, “Develop success from failures. Discouragement and failure are two of the surest stepping stones to success.” And another person said, “You can’t let your failures define you. You have to let your failures teach you.” In the light of these quotes, I tell you the truth, you can’t be successful in life if you quit or give in to discouragement and failures. Therefore, you must keep your hope alive, and keep keeping on until you achieve your desired goals in the foreign exchange market and in life generally. I’ve written this highly profitable trading strategy to help bring your struggles to an end.
This trading strategy combines both technical and fundamental analysis in order to make good profit from trading any commodity, commodity currency or currency pair. Commodity currencies are currencies whose prices are driven by the prices of commodities such as Crude Oil, Natural Gas, Gold, etc. There are a number of commodity currencies like Canadian Dollar (CAD), Japanese Yen (JPY), Australian Dollar (AUD), New Zealand Dollar (NZD), American Dollar (USD), Swiss Franc (CHF), etc.
So to take great advantage of this highly profitable trading strategy, you need to get yourself acquainted with what’s going on in the commodities markets and then relate that to the price of commodity currencies. The price of CADJPY is largely driven by the price of Crude Oil, while the prices of AUDUSD, EURUSD, USDCHF, NZDUSD, are largely driven by the price of Gold. This is known as market correlation.
For example, you can trade CADJPY in relation to CRUDE OIL price action; you can trade AUDUSD, EURUSD, USDCHF, and NZDUSD in relation to the price action of the commodity GOLD.
Also note that the strategy works for currencies that are not commodity currencies too. You can even use the strategy to trade the commodities themselves.
Now, I can go further to explain how this highly profitable trading strategy works:
Indicators (Mt4 Custom Indicators)
Simple Moving Average (SMA) period 21 (color: yellow on the main chart), Exponential Moving Average (EMA) period 10 (color: white on the main chart), and Average Directional Index (ADX) with default settings (indicator window). For each of the indicators, you can modify the colors to your taste.
Identification of Trends
Downtrend: the 10 EMA is below the 21 SMA
Uptrend: the 10 EMA is above the 21 SMA
Crossover: A crossover is that point where the trend is about to change from either
(i) a downtrend to an uptrend (the 10 EMA crossing over to the upper side of the 21 SMA) or
(ii) from an uptrend to a downtrend (the 10 EMA crossing over to the lower side of the 21 SMA)
Entry Conditions (GBPJPY Short Position in this example)
To go short (place a sell order) on GBPJPY pair in this example, you need to first ensure that the following conditions are in place:
1. On the H1 Time Frame: There must be a little crossover and price is below both the 10 EMA and the 21 SMA. See the figure below:
2. On the H4 Time Frame: There must be a little crossover or the 10 EMA and 21 SMA must be touching each other (or they’re almost touching each other) and price is on or below both or one of the moving averages. See the figure below:
3. On the Daily Time Frame: There must be a crossover of the two moving averages and price is below both the 10 EMA and the 21 SMA. This is an indication that the longer time frame is already in a downtrend. And the trend on the H1 time frame must conform with that on the daily time frame if you must short GBPJPY. See the figures below:
Having made the observations on the three time frames above, you may also switch to the lower time frames 5 minutes- M5, 15 minutes-M15, and 30 minutes-M30, to also confirm that each of them is in a downtrend.
4. Currency Strength: JPY should be strong or be among the strongest currencies and GBP should be weak or be among the weakest currencies. The currency strength reading is based on the economic activities going on in each of the countries you’re trading the currencies.
5. ADX Indicator: Finally, you may observe the behaviors of the negative DI (red) and the positive DI (green) on the three time frames of reference: H1, H4, and the Daily time frames. You’ll observe that on each of the three time frames, the negative Directional Index (red) points upward or try to point upward indicating a potential increase in the downward momentum. And on the other hand, the positive Directional Index (green) points downward or try to point downward indicating a potential decrease in the upward momentum.
When the five conditions above are in place, then you can short GBPJPY by clicking on “New Order” and then “Sell” at the current market price on your mt4.
Stop Loss (SL): Place a SL of 500-1000 pipettes/points or 50-100 pips/points depending on the broker’s mt4 platform.
Take Profit (TP): Place a TP of 1500-4000 pipettes/points or 150-400 pips/points depending on the platform.
1. In addition to the moving averages above, you may add the 200 EMA to get a better direction of the long term trend. If price is below the 200 EMA, the market is in a downtrend and if above, the market is in an uptrend. Though I don’t leave the 200 EMA on my charts.
2. Your TP and SL depends on:
(i) The volatility of the pair you’re trading. Highly volatile pairs like the GBP pairs require wider SL and TP
(ii) The time frame you’re focusing on. They’re directly proportional to the time frame.
3. Remember to always trail your stops while your trades run.
4. Some brokers quote currency pairs using the standard 4 and 2 decimal places called pips while others quote currency pairs beyond the standard 4 and 2 decimal places to 5 and 3 decimal places called fractional pips or pipettes. Therefore,
1 pipette = 1/10 of a pip or
1 pipette = 0.1 pip
5. Long trades also work in similar manner by reversing conditions 1-5 above.
6. Fundamental Analysis + Technical Analysis = Greater Profitability