If you have questions, concerns or are just unclear on any aspects of this simple Forex strategy, send me a brief note via the About the Author page, and I'll get back to you with an answer quickly.
Even though this is a simple Forex strategy, you should still do some homework. If you don't know the basic support and resistance levels you are up against, you are likely to get in trouble.
1) Decide which pair you are going to trade. Stick to a major pair and try to stay away from the really volatile ones, such as some of the Yen crosses.
2) Determine the trend by adding an 8 period simple moving average (SMA) of the closing price and an 8 period SMA of the open price. Alternatively you can use an HMA (Hull moving average - search on Google) of the Open/Close for better smoothing.
You will see that when the trend flips, these SMA's give you a clear indication. If the lines seem tangled together, the market is moving sideways and you should stay out.
Experiment a bit and see which ones work best for you. Adding levels such as 20 and 80 to the Stochastic indicator also help show you when it is getting close to an extreme reading, which usually means a price reversal is near.
The most reliable signals come from the longer period charts. I like to use the H4 and the D1 charts for the big picture, and then use the M15 and H1 charts to find my entry point. 4) The trade signal is a combination of the crossing of the SMA's and also the crossing of the Stochastic. This will give you a reasonably safe entry point.
5) Get in, but risk no more than 3% of your capital! Doing this will allow you to place your stop far enough away from the current price action, without a high risk to your capital. I like to enter my trades so I can take profit in two stages.
6) Place your "Stop Loss", but put it far enough away from the entry price so you won't be "stopped out" of a good trade.
1) Place your "take profits" limit orders. I often set the first to a fixed level such as the average of the past 5 daily ranges, and the second exit is with a trailing stop to capture extra profits.
You always need to be aware of support or resistance levels and trade accordingly.
2) Monitor the trade and once the price is a safe distance from your stop, move the stop ever closer to your entry price until your profits are locked in. You may want to then convert the stop to a trailing stop which will follow the market.
Anything can happen in trading, and this simple Forex strategy is not immune from any of it. The "stop loss" will ensure that if you happen to get hit by a bus, your position can't get away on you. As long as you are staying within the 3% guideline, the price can move against you, even several hundred points, without any real effect on your account.
Don't fall into the "double your money everyday" trap that many systems promote. Those are the the guys that are blowing out accounts all the time. Slow and steady is how the big guns trade and that is for a very good reason... it's safe. Trade safely.
Be sure to review the more detailed explanation of "stop losses" in the main Forex Strategy section.