The Setup
Chart - 4 Hour; 1 Hour
Currency – Any
Exponential Moving Average (EMA) – 3 on Close (YELLOW)
Exponential Moving Average (EMA) – 5 on Close (BLUE)
Exponential Moving Average (EMA) – 12 on Close (RED)
Moving Average Convergence/Divergence (MACD) – 12, 26, 9 (default)
Stochastic Indicator – 5, 5, 3
BUY Conditions
4 Hour Chart
The 4 hour chart will give you the trend direction to enter. The conditions are as follows:
3 EMA crosses over 5 EMA (either down or up)
Body of the Candle closes and is below/above the 12 EMA
Stochastic is moving in the direction of the trend (either up or down)
MACD has crossed or is indicating a strong change in direction.
The key to the 4 Hour chart is it will give you the general trend direction of the currency which indicates either a buy or sell opportunity for it.
1 Hour Chart
3 EMA crosses over 5 EMA (either down or Up)
Body of the Candle closes and is below/above the 12 EMA
Stochastic is moving in the direction of the trend (either up or down)
MACD has crossed in the direction of the 4 hour trend
How it Works
1. Looking at the 4 Hour Chart all indicators are showing us that the direction of the trend is moving downward (SELL).
2. Looking at the 1 Hour Chart we enter a SELL trade when our 3 indicators comply with the trend identified in the 4 Hour Chart.
3. Although the MACD and Stochastic indicate a possible change in the direction of the trend we stay in the trade until the 3 EMA crosses the 5 EMA and the candle body closes above the 12 EMA.
4. Exit with a 235 PIP gain when the 3 EMA crosses the 5 EMA and the candle body closes above the 12 EMA.
5. Although the 4 Hour chart indicates the trend is still downward we wait to enter another SELL trade when the conditions on the 1 Hour chart identify the opportunity. A 355 PIP gain if you stayed in the trade until the trend reversed.
Options
1. On the 4 Hour chart you can see the 3 EMA did not cross the 5 EMA and the Candle body remained below the 12 EMA. Although the MACD and Stochastic were telling us there is a possible trend direction it was short lived – you could stay in the SELL trade if you are brave.
2. You could take an opportunity to enter a BUY trade on the 1 Hour chart for a short gain on the retraction indicated by the MACD and Stochastic change on the 4 Hour chart.
3. You can enter a BUY/SELL trade in the direction of the 4 Hour chart trend on the 1 hour chart. The 4 Hour chart is only used to identify the direction of the trend.
STOP/LOSS
1. Set your STOP/LOSS at 40-50 PIPS on trade 1
2. Set a trailing stop on trade 2
LIMIT
1. I enter two trades; Trade 1 with a limit of 25 PIPs and Trade 2 with no limit and exit when the 1 Hour chart indicates the exit position or let your trailing stop exit the trade for you.
See attachment for Chart examples