After exploring theoretical basis prior to initiate trading, a currency trader will inevitably face the necessity of choosing a trading strategy, which will be the most suitable for him/her. It is considered the best alternative when a trader creates his/her own trading system; however, the reality is that in order to do it you should gain experience of trading, which takes quite a lot of time.
From the variety of trading strategies, which are offered to the brokers, we can distinguish the strategies that prove to be successful not only in the historical records but also in the real trading. One of such strategies is Forex Power Trader.
Basic features of the strategy
The strategy is best suited to the short-term traders, who prefer to conduct several transactions per day on different currency pairs. The main target is to search short-term traders and work with them. Therefore, the best option is to use 30-minute timeframe. The designers of this strategy strongly recommend not to decrease the time interval; however you can also try to work on the hourly chart. In which case you should consider the level of risk per trade: volatility on the hourly chart is higher, and the use of large shoulders can have a negative impact on the client’s account.
This strategy is used for the TOP-5 currency pair of the Forex market, including EUR/USD, USD/JPY, GBP/USD, USD/CHF, USD/CAD, as they have the required level of liquidity, volatility and low spreads.
The strategy has been adjusted and is easily integrated into the well-known trading terminal Metatrader 4.
Principle and basic rules of the strategy
As noted above, strategy Forex Power Trader is designed to search small trend movements, which means it incorporates both main and additional signals. The main signals tell a trader about the change in trend and main movement direction, while additional signals help find the entry point. You can enter into transaction only if all indicated signals will coincide. At the same time the entry point serves also as an exit point from the previous transaction.
The main indicator, generating entry signals is the Power Arrow. When you see an upward Arrow on the chart, you can treat it as signal to buy; Downward Arrow – is a signal to sell. In order to avoid false breakouts and trading in flat, additional signals are generated by the RSI and Stochastic Oscillators. For buy transactions: wait for the moment when the line RSI goes above the level 50, both lines of Stochastic shall be above 80 (the blue line shall be above the white line). For sell transactions the situation is the opposite: RSI indicator shall be below the level 50, Stochastic lines – below 20 (blue line is below the white line).
We use Power Monitor as an additional indicator, which does not give signals, but confirms that the decision to open an order was correct. This indicator also shows the stage of development of the trend, which means that if the entry signal takes place simultaneously with the deterioration in trend it is advisable not to place an order, but lock in profit. The best moment to place an order is when all three indicators give entry signals, while Power Monitor indicates a strong trend.
Restrictions of the strategy
It should be noted that the combination of the indicators is extremely favourable in the context of delays. Power Arrow generates signals near the local lows and highs, while the Oscillators are the leading indicators. However, the system can fail when fluctuation in the market is strong, or important macro-economic data has been released, and in such cases the indicators will give false signals. We can use RVI, ATR, Chaikin Volatility to determine volatility. As these indicators are not included in the system, they shall be put on the chart by a trader, as they can help a trader to determine when the strategy Forex Power Trader can be used.
Management of capital in the strategy
Designers of the strategy do not give recommendations on the capital management, so it is a task of a trader to manage his/her funds. No matter how good is a strategy, a trader shall not forget to place Stop-losses, estimate the funds to be invested in trade and analyze potential profit. As the signals are generated near the extremums, it makes sense to place protective orders below the local lows, or above the local highs with the minor offset.
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The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteForex. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.