Trend trading is the most popular type of trading in the Forex currency market . The main difficulties in this are finding entry points and determining the duration of the trend. These issues will help solve the trading strategy of ADX and RSI
Characteristics of the trading strategy of ADX and RSI.
- Platform: MetaTrader4 .
- Currency pairs: preferably EURUSD, GBPUSD, USDCAD. For others, you need to select the parameters.
- Timeframe: H1, H4.
- Broker: Forex4you , InstaForex , RoboForex , Fort Financial Services .
Trading Strategy ADX and RSI. Rules of work.
1. Determination of trend strength by ADX.
The priority of any trend trader is to find a strong trend. For this purpose, the ADX indicator with a period of 14 and added levels of 30 and 40 is used. We set the indicator on the chart of a currency pair (timeframe H1 or H4). Remember, the ADX indicator does not show the direction of the trend, but only its intensity. If a currency pair consolidates, a weakening trend indicator will have lower values and vice versa, the stronger the trend, the higher the value of ADX. According to the terms of the trading strategy, we only work if the ADX has a value above 30.
2. Determining the entry point by RSI.
Once a strong trend is found on the chart (the ADX indicator is above level 30), it is necessary to determine the entry point into the market.
The template for the ADX and RSI trading strategy can be downloaded at the bottom of the article.
To determine the right moment to open a position, the RSI indicator is used with a period of 14 and levels 30 and 70, which determine the oversold and overbought zones. With an uptrend, we buy when the value of the ADX indicator becomes above 30 and the RSI enters the overbought zone (above the level of 70). In a downtrend, we sell when the value of the ADX indicator is also above 30 and the RSI enters the oversold zone (below 30).
In the example above: chart EURUSD timeframe Н1. The ADX indicator is growing and shows that the trend is strengthening in the market. 12/02/2014 ADX goes beyond level 30, i.e. gives us a signal, the RSI indicator goes beyond level 30 and this is a signal to open a sell position. I think everything is simple and clear.
3. Stop loss and take profit levels according to the ADX and RSI trading strategies.
The stop loss level should be set at 20-25 points. We set the take profit level at the level of 60-70 points.
If the price has not reached the take profit level, and the ADX indicator starts to fall, then you should close the deal when ADX drops to level 40. In the above example, we see that under the terms of this trading system, we closed the deal, and the price continues to fall, that is . have lost profits. Firstly, you have already fixed the profit. Secondly, you can slightly change the system and close the position not at level 40, but at level 30, or use a trailing stop . But all this must be checked on history, because this example is not a standard, the price movement is volatile. Thirdly, according to the rules of this trading strategy, when ADX starts to grow again (literally in three candles), you can again open a sell position - all conditions are met. And you can see that this deal will be profitable.
The trading strategy of ADX and RSI shows the best results on the EURUSD pair and not bad on the GBPUSD and USDCAD pairs. You can use it on other currency pairs, but it will be necessary to optimize the parameters of indicators and change the levels of stop loss and take profit.
Trading strategy ADX and RSI:(download template)
Characteristics of the trading strategy of ADX and RSI.
- Platform: MetaTrader4 .
- Currency pairs: preferably EURUSD, GBPUSD, USDCAD. For others, you need to select the parameters.
- Timeframe: H1, H4.
- Broker: Forex4you , InstaForex , RoboForex , Fort Financial Services .
Trading Strategy ADX and RSI. Rules of work.
1. Determination of trend strength by ADX.
The priority of any trend trader is to find a strong trend. For this purpose, the ADX indicator with a period of 14 and added levels of 30 and 40 is used. We set the indicator on the chart of a currency pair (timeframe H1 or H4). Remember, the ADX indicator does not show the direction of the trend, but only its intensity. If a currency pair consolidates, a weakening trend indicator will have lower values and vice versa, the stronger the trend, the higher the value of ADX. According to the terms of the trading strategy, we only work if the ADX has a value above 30.
2. Determining the entry point by RSI.
Once a strong trend is found on the chart (the ADX indicator is above level 30), it is necessary to determine the entry point into the market.
To determine the right moment to open a position, the RSI indicator is used with a period of 14 and levels 30 and 70, which determine the oversold and overbought zones. With an uptrend, we buy when the value of the ADX indicator becomes above 30 and the RSI enters the overbought zone (above the level of 70). In a downtrend, we sell when the value of the ADX indicator is also above 30 and the RSI enters the oversold zone (below 30).
In the example above: chart EURUSD timeframe Н1. The ADX indicator is growing and shows that the trend is strengthening in the market. 12/02/2014 ADX goes beyond level 30, i.e. gives us a signal, the RSI indicator goes beyond level 30 and this is a signal to open a sell position. I think everything is simple and clear.
3. Stop loss and take profit levels according to the ADX and RSI trading strategies.
The stop loss level should be set at 20-25 points. We set the take profit level at the level of 60-70 points.
If the price has not reached the take profit level, and the ADX indicator starts to fall, then you should close the deal when ADX drops to level 40. In the above example, we see that under the terms of this trading system, we closed the deal, and the price continues to fall, that is . have lost profits. Firstly, you have already fixed the profit. Secondly, you can slightly change the system and close the position not at level 40, but at level 30, or use a trailing stop . But all this must be checked on history, because this example is not a standard, the price movement is volatile. Thirdly, according to the rules of this trading strategy, when ADX starts to grow again (literally in three candles), you can again open a sell position - all conditions are met. And you can see that this deal will be profitable.
The trading strategy of ADX and RSI shows the best results on the EURUSD pair and not bad on the GBPUSD and USDCAD pairs. You can use it on other currency pairs, but it will be necessary to optimize the parameters of indicators and change the levels of stop loss and take profit.
Trading strategy ADX and RSI:(download template)
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