There are many forex trading strategies that exist today and all have their advantages and disadvantages. This time, we will try to look at forex trading strategy and system by using two indicators, Stochastic Oscillator (SO) and Fractals. But before that, we discussed a little about these two indicators.
SO is one indicator that is widely used by traders, both beginner traders and those who have long experience in the world of forex trading. SO is an indicator whose appearance is a line inside a range of 0-100 outside the main chart screen. This SO measures the level of price movement of a currency pair whether it is classified as neutral, overbought or oversold.
Meanwhile, Fractals is an interesting indicator although it is not as popular as SO in its use among traders. Fractals provide clues about possible changes in direction of the price of a currency pair, so that traders can place orders based on these changes.
So, what if the two indicators are combined together in one screen?
We will look at both indicators first before entering into the next discussion about forex trading systems and forex trading strategies using these two indicators.
Display of Stochastic Oscillator and Fractals on the MT4
The picture shows that Fractals are on the main screen and close to the current candlestick movement. Meanwhile SO is in a separate column and moves up and down following the movement of the candlestick.
Both of these indicators can be a simple forex trading strategy and profitable if they are combined well. The analysis of these two indicators in forex trading will be discussed in explanations below.
How to trade the Forex Trading System by Using SO and Fractals?
Some steps in trading by using the two indicators are as follows:
- Set SO and Fractals on the MT4 screen, no need to adjust the parameters of the two indicators.
- Fractals are indicators that tend to counter trend while SO is also like that. Therefore, it is recommended to trade according to this principle.
- If you want to make an entry buy, make sure the SO has entered the oversold area, ie when the SO line is below the 20 or around 20.
- See if Fractals are formed or not, if they don’t, don’t make entries.
- If the SO is oversold and Fractals are also appeared, then buy entries can be made with the Fractals point being a Stop Loss.
- For sell entries, the opposite must be done. Make sure the SO is in the overbought area above the number 80 and Fractals have also been formed. Make Fractals the Stop Loss point for this sell order.
Look at the example image below to make it easier to see making an order
Examples of Placement of Orders with Stochastic Oscillators and Fractals
What about the Profit Target and Exit Order?
Profit targets can be set with various approaches. Some of them are as follows:
- Using SO as profit target, i.e. if the entry is selling, the exit order and target profit are when SO enters the oversold area.
- For buy entry, exit order and target profit for this order is when SO is in the overbought area.
- If using Fractals, target profit and exit orders are taken after new Fractals appear, especially those that are opposite to previous Fractals.
- The greater the timeframe used, the easier it is to determine the target profit point and the more valid the resulting data.
There are also some traders who calculate the target profit and stop loss using the number of pips approach. This is possible and can be done. However, the thing to note is that the stop loss point is not too close or the profit target is too far away so that trading is not optimal.
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Keep in mind that the system using these two indicators does not always provide certainty of profit and success. Therefore the loss limit must remain and be installed at every time an entry is carried out in the form of SL. Indicators are only tools to see what is likely to happen, not tools to see the future that will happen.
Always obey the rules when making transactions, because most traders make the mistake of breaking the rules they made themselves. This rule includes not opening new positions if the existing ones are not yet closed regarding SL or TP. Do not get carried away quickly when experiencing losses or when making a profit. Keep doing the analysis with good and focused mind to achieve forex trading system that are yielding consistent profits.