Lot of people are looking for a way to profit in forex, but at the same time they are afraid of trying anything that doesn't sound super conservative. Sometimes, to make the strategy work, you need to cross the river and do something out of the ordinary.
Using averaging in forex is often downplayed and considered too risky to be even considered a real trading method. And it is partially true. Averaging without a sense of money management can ruin your account extremely quickly, especially if you try to fight the major trend.
But the truth is that averaging is one of the most basic and logically sound money management method you can use. It also improves your overall entry price. Bigger positions are also opened on better price.
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What is it then, with averaging that can make it work? Going with the trend not against it is the simple answer. By dividing your position into small fractions you can simply have a better entry 99 percent of the time which increases success rate tremendously and you will still go with the general market flow.
Used forex indicator
Alligator forex indicator (520,320,200). First step of trading this forex strategy profitably is to identify the major trend and don't trade against it.
Stochastic is used as entry method. It can be easily exchanged for any other oscillator or charting method. For this forex strategy, all entry methods are created equal.
Forex strategy rules:
SELL
Downtrend is clearly identified by alligator forex indicator. Lines are clearly separated and lined according to downtrend (blue, red, green – from top to bottom).
Both Stochastic lines rising above 70 line. We sell once they begin to slope downwards. We do not wait for absolute signal confirmation (both crossing below 70 line).
If positions moves immediately to profit of 30 – 100 pips we liquidate it.
If position moves to loss, we wait for another stochastic signal and enter another trade, with the same position size and same direction.
We have a larger position at better price and we will be looking to liquidate it in average profit depending on the distance between the two positions.
Never allow profitable position to turn into a loser. Once any position reaches a profit of around 30 pips place stop loss so it can protect at least couple of pips of profit !
We open up to 6 positions, always on better price.
Once we open seventh position we will not be looking to average anymore.
In this rare case we will be looking to liquidate each positions immediately as it moves to profit of 30 – 100 pips (they are not added to averaging category).
We do so for up to 12 positions 0,012 lot. This will be the maximum amount of position opened in one direction. This situation is extremely rare.
Stop loss: Once the Alligator lines begin to signalize uptrend we can either liquidate all positions in loss (conservatively) or if we still believe that market might continue downwards we liquidate only every second position to limit our exposure. Then we continue to trade on the other side of the market which will result in partial hedging.
BUY
Uptrend is clearly identified by alligator forex indicator. Lines are clearly separated and lined according to uptrend (green, red, blue – from top to bottom).
Both Stochastic lines fall below 30 line. We buy once they begin to slope upwards. We do not wait for absolute signal confirmation (both crossing above 30 line).
If position moves immediately to profit of 30 – 100 pips we liquidate it.
If position moves to loss, we wait for another long stochastic signal and enter another trade, with the same position size and same direction.
We have a larger position at better price and we will be looking to liquidate it in average profit depending on the distance between the two positions.
Never allow profitable position to turn into a loser. Once any position reaches a profit of around 30 pips place stop loss so it can protect at least couple of pips of profit !
We open up to 6 positions, always on better price.
Once we open seventh portion we will not be looking to average anymore.
In this rare case we will be looking to liquidate each position immediately as it moves to profit of 30 – 100 pips (they are not added to averaging category).
We do so for up to 12 positions. This will be the maximum amount of position opened in one direction. This situation is extremely rare.
Stop loss: Once the Alligator lines begin to signalize downtrend we can either liquidate all positions in loss (conservatively) or if we still believe that market might continue downwards we liquidate only every second position to limit our exposure. Then we continue to trade on the other side of the market which will result in partial hedging.
Notes: This forex strategy is battle tested. It is definitely not suitable for anyone, but it is not that risky. We consider trying to predict a next market move with tight stop loss to be risky. This forex strategy simply uses common sense to enter the position to on best possible price.
