2024-03-04 • Updated
The main advantage of the "Fifth element strategy" is that it tells you beforehand about the entry price. As a result, you won't spend lots of time in front of the screen waiting for the right moment to make an order.
Key elements:
Timeframe – H1, H4.
Trading tools – MACD with the following settings: fast EMA 12, slow EMA 26, MACD SMA 9.
Currency pairs – EUR/USD, USD/JPY, GBP/USD. USD/CHF, USD/CAD, AUD/USD, NZD/USD.
The concept of a strategy
MACD histogram indicates the direction and momentum of the market. If the MACD histogram switches from negative to positive, this is a signal of the possible upward shift in momentum. You should wait for 5 positive bars on the histogram to confirm the momentum before opening a long order at the fifth bar (that’s why this strategy is called “Fifth element”; it’s not after Luc Besson’s film). If the MACD histogram switches from positive to negative, it means that you should open short positions (the rule of the fifth bar remains in force).
Long trade's setup
You have 2 profit targets with risk to reward ratios – 1:1 and 1:2 accordingly. For example, the risk of your trade is 150 points, and the reward is 300 points if both targets are fulfilled. The risk to reward ratio is 1:2, which yields a tidy 6% return if we take a 3% risk.
Key elements:
Timeframe – H1, H4.
Trading tools – Stochastic oscillator with the following settings: %K period = 10; %D period = 3; Slowing = 3; Price field = high/low; MA method = simple; Levels 20 and 80.
Reminder: stochastic is an indicator that measures overbought and oversold conditions in the market.
Currency pairs - EUR/USD, USD/JPY, GBP/USD, USD/CHF, USD/CAD, AUD/USD, NZD/USD.
The concept of a strategy
The basic concept of the strategy is that a range should be formed after the market stops trading. The stochastic indicator helps us to identify a possible range formation. It is also important to pay attention to the current market momentum to understand whether we should go long or short. If the market is moving up, we may open a long position. The entry point can be found with the help of Stochastic (it should be below the 20 level in the oversold area). If the market is moving down, we may open a short position. The entry point can be found with the usage of Stochastic oscillator, which should be in the overbought area (above the 80 level). The Power ranges strategy has two profit targets. The first one should be taken within the range, while the second target is located beyond the range in an anticipation of a breakout.
Long trade's setup
Beware! It doesn’t mean that you go long whenever the stochastic is in the oversold region or go short whenever the stochastic is in the overbought region. You should identify momentum before entering the market.
Sometimes a chart or a candlestick pattern may provide a decent entry signal if it is located at a certain level. A pin bar is one of the most reliable and famous candlestick patterns, and when traders see it on the chart, they expect the price to change its direction soon.
Among hundreds of different indicators and technical tools for traders, the relative strength index (RSI) is one of the most popular due to its simplicity and, at the same time, its power in various trading cases. In this article, we want to tell you about another powerful tool similar to RSI but with some cool tweaks.
There are a lot of valuable strategies that require the knowledge of candlestick patterns and oscillators. However, not of them are profitable. When you start trading with them, you can face situations when the strategy is not moving your way.
If you are 18+ years old, you can join FBS and begin your FX journey. To trade, you need a brokerage account and sufficient knowledge on how assets behave in the financial markets. Start with studying the basics with our free educational materials and creating an FBS account. You may want to test the environment with virtual money with a Demo account. Once you are ready, enter the real market and trade to succeed.
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