This forex strategy uses morning and evening star forex formations as entry signals. Signal alone is reliable under any circumstances, but RSI is used to identify the trend direction and further increase its accuracy.
It is recommended to trade this forex strategy in 1 hour timeframe. Due to the universal nature of the signal however, it works on any timeframe above 5 minutes.
Tight stop loss is used and RSI helps us to determine suitable exit point. Standard 50/50 approach (stop loss equals take profit) is used only for break even stop loss placement.
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Used forex indicators
RSI (relative strength index) 80. RSI with long calculation period is used to separate trending conditions and to ensure that our trade stays on the right side of the market. For use to be able to properly separate trend, additional 50 line must be applied to RSI char window.
Forex strategy rules
Strategy can be traded in any timeframe above 5 minutes. However, it is recommended to stick to 1 hour chart of majors.
SELL:
RSI trends below 50 line, strongly suggesting downtrend (downwards momentum). We will take only short trades.
Therefore, we need to be looking for evening star forex formation. Evening star consists of three candles.
1: Bullish candle.
2: Narrow bullish or bearish candle, closing above first candle.
3: Wide bearish candle closing below first candle open. Completing the evening star formation.
Once the formation complete, we enter the trade short placing protective stop loss above the high of our signal formation.
Take profit:
Once the price travels distance that equals formation range, we move stop loss to break even (entry point). Wait for RSI to cross 50 line upwards to fully liquidate sell position in profit.
BUY:
RSI trends above 50 line, strongly suggesting uptrend (upwards momentum). We will take only long trades.
Therefore, we need to be looking for morning star forex formation. Morning star consists of three candles.
1: Bearish candle.
2: Narrow bullish or bearish candle, closing below first candle.
3: Wide bullish candle closing above first candle open. Completing the morning star formation.
Once the formation complete, we enter the trade long placing protective stop loss above the high of our signal formation.
Take profit:
Once the price travels distance that equals formation range, we move stop loss to break even (entry point). Wait for RSI to cross 50 line downwards to fully liquidate buy position in profit.
