Simple and effective, but most importantly, be consistent about it.
First, some disclaimer. I am not a financial advisor. The content is purely for educational/research purposes and is merely based on my personal experience. Trade at your own risk, I highly recommend NOT to follow my strategy as it may not fit your lifestyle, please backtest first before diving into the real market and I am not reliable for any losses.
My strategy revolves around this book called, “ THE CANDLESTICK TRADING BIBLE” by MUNEHISA HOMMA. Feel free to just Google it, should be free.
Alright, there is a total of 4 steps to my strategy. Namely, Fibonacci Extension, Exponential Moving Average, Candlestick Pattern and Support/Resistance Level. Let’s break it down for you with an example.
https://www.tradingview.com/x/p6Wcd5G6/
(GBPUSD Daily Timeframe)
Personally, I like to use 51 EMA and 200 EMA to see the overall trend of the market. It is always good to just follow the trend until the end. Because our EMA also serves as a dynamic resistance level, we should look for 3 touchpoints (you can see from the picture).
Only consider a potential setup when there are 3 touchpoints. Once we see the 3rd touch forming at our 51 EMA, we can move on to the next step, checking if the 3rd point is also a Support/Resistance area (highlighted in blue above). Hence, Yes it is a Resistance turn Support Area.
https://www.tradingview.com/x/XFasuvbd/
(Same Pair, just added Fib Ext and TP and SL)
Alright, the next step we can use our Fibonacci Extension to see if they are in our Golden Retracement zone. My Golden Retracement zone is between, 61.8%, 50% and 38.2%, these are the area where prices are most likely to rebound and continue in their trend. Draw your Fibonacci Extension from the 2nd touchpoint to the peak of the 3rd touchpoint. Fibonacci Extension will serve as your stop loss and take profit level.
Lastly, the most important of all is to check the candlestick pattern at 3rd touchpoint. The candlestick pattern is the key to determining if the setup is valid or not. There are a few candlestick patterns you can look out for. Namely, my favourite bullish engulfing, follow by pin bar/hammer, then Morning Star, then Doji and Harami. All these candlesticks will determine if you should enter the trade or not.
End result of our trades.
For this instance, we have a bullish engulfing candlestick which confirms our setup and allows us to place a trade. Keep your profit safe by taking partial profit at 100% of Fibonacci Retracement level and set your stop loss at break even.
Of course, the set-up above is cherry-picked, the perfect situation that we all want. This is why, I do not recommend anyone to follow my strategy as though it might fit my lifestyle, chances are high that it might not fit yours.
With all these confluence stacking neatly in place, our odds of winning will increase. However, there is definitely some downside. One is that this perfect setup does not happen all the time. Forex is a patience game, not every day you are able to place a trade, so give yourself some time to backtest, learn to identify different scenarios that can help you visualise better. Second, the downside is that the win rate is not 100%, it is around 40% win rate, the price might still change entirely, ignoring all the confluence that we have just found. Gotta keep your mental game strong, keep telling yourself that this strategy works.
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