5 SMA With 5 RSI Forex Trading Strategy

The 5 SMA with 5 RSI Forex Trading Strategy is another simple forex strategy that beginner forex traders can find it easy to implement.

Timeframe: Any

Currency Pair: Any

Forex Indicators: 5 SMA and RSI period settings at 5.

Brief Overview:

  • The 5SMA Indicator is for determining trend so if the price is is above the 5 SMA, it is an uptrend or downtrend if  price is below the 5 SMA.
  • The RSI is used as a confirmation signal. The RSI is a technical momentum indicator that compares the magnitude of recent gains to recent losses in an attempt to determine overbought and oversold conditions. The RSI ranges from 0 to 100.
  • A currency pair is deemed to be overbought once the RSI approaches the 70 level, meaning that it may be getting overvalued and is a good candidate for a pullback its time to look for a sell opportunity.
  •  On the other hand, if RSI approaches 30, it is an indication that the currency pair may be getting oversold and therefore likely to rally so its time to be looking for a buy opportunity.

5 SMA WITH 5 RSI FOREX TRADING STRATEGY RULES

Refer to this chart for how to buy and sell using this strategy. The rules are below  this chart:

5 SMA With 5 RSI Forex Trading Strategy

Buying Rules:

  1.  When price crosses over 5 SMA  to the upside and that candlestick closes, check to make sure that it is more than + 10 pips up
  2. Then check the RSI, it must be above RSI 50 line.
  3. Buy at market or place a buy stop order 2-5 pips above the high of the candlestick
  4. Place your stop loss about 5 pips below the low of the candlestick.
  5. Set take profit 3 times what your risked initially or there is a previous swing high you can spot, then place your take profit target there.

Sell Rules:

  1.  When price crosses over 5 SMA to the downsdie and that candlestick closes, check to make sure that it is more than + 10 pips down
  2. Then check the RSI, it must be below RSI 50 line.
  3. Buy at market or place a buy stop order 2-5 pips above the high of the candlestick
  4. Place your stop loss about 5 pips below the low of the candlestick.
  5. Set take profit 3 times what your risked initially or there is a previous swing high you can spot, then place your take profit target there.

DISADVANTAGES OF THE 5 SMA AND 5 RSI FOREX TRADING STRATEGY 

As usual, every forex trading strategy has it weakness:

  • SMA’s are lagging forex indicators which means that this forex trading strategy  will generate too many false trading signals in flat or non-trending market.
  • Sometimes, the breakout candlestick may be too long, which may mean that your stop loss would be quite large.

ADVANTAGES OF THE 5 SMA AND 5 RSI FOREX TRADING STRATEGY

  • A very simple forex trading strategy that comes  with an easy to spot trading setups which are easy to execute.
  • This is a trend trading forex strategy so if  you can catch the beginning of a trend with the trading strategy and if you trail stop your trades, you can easily make 100+pips easily if you are trading on larger timeframes like 1hr, 4hr or daily

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