Classical approach to reading markets created one of the forex strategies that has been used for a long time on many different markets, by many sucesfull traders. To trade it efficiently, knowledge of horizontal supports and resistances is necessary.
This forex strategy is extremely scalable, flexible and yet robust. It can be used on any timeframe and any currency pair. Exits are calculated based on signal size and therefore remain adaptable to market circumstances.
Rules of forex strategy:
Identify the trend on current timeframe. To do so, we can use combination of moving averages or draw our trendlines directly on the forex chart
We look for the price to reach new low within current downtrend / new high within uptrend. To confirm new extreme we wait for next two candles to be closed on the chart. If they have not breached newly created extreme, signal is cofirmed. Fractals forex indicator can be used for easier visualisation.
After confirmation of signal. We place pending order at newly confirmed extreme, and we enter the position in the direction of the breakout.
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After postion entry we place protective stop loss at the end of the retracement (wave) that was created after trend reached its highest/lowest point and position entry. In other words Stop Loss is same size as the wave that created at complete signal.
Scalping approach: If you prefer to collect frequent winning trades, preset the take profit to 3 – 6 pips. If you did your homework in trend identification correctly, you will experience winning trades that are 10 -30 * more frequent than losers.
Conservative: Risk reward ratio of 1:1. Take profit is same size as SL. Frequency of winners will very much depend on your ability of correctly determining the trend.