If you have any questions or suggestions you are welcome to join our forum discussion about Combining RSI, Full Stochastic Oscillator and SMA . The current article will acquaint you with another useful and reliable trading system which is based on the combination of a slow Simple Moving Average, Full Stochastic Forex oscillator and Relative Strength Index.
It uses tight stop-loss protection, while ensuring high potential profits by producing accurate entry signals. It is best practiced on a daily time frame to limit the effects of whipsaws and can be used with any currency cross. The first condition which must be met to initiate a long entry is for the 150 SMA to be below the price action, thus signifying a bull trend. Conversely, a short entry signal is generated when the 150 SMA is above the price action, signifying a bear trend, and RSI and the Stochastic are in the overbought area. As soon as the Stochastic’s fast and slow lines make a bearish crossover, you must enter short on the next price bar. Stop-loss, profit target We said that this strategy offers a high degree of capital protection because it places stop-loss levels at the most recent swing low.
At that point you can either exit the entire trade, scale out of it and use a trailing stop, or keep the entire position and trail your stop. The trailing stop is typically placed below the low of the previous bar in a bull trend, or above the high of the previous bar in a bear trend. We have used an hourly chart for the example above to show that it too can generate reliable signals, although whipsaws will be much more frequent compared to the daily time frame. As you can see, a strong and protracted bull trend was in motion, as indicated by the rising 150-period SMA. RSI was deep in the oversold area, while the Full Stochastic performed a bullish crossover, generating a long entry signal. Thus, we will enter above the high of bar 1, or at 1. 3596, scoring a profit of 13 pips.
We can instead remain on the market as the stochastic becomes overbought and immediately trail our stop to breakeven. As soon as we reach a 1:1 risk-reward ratio, we can scale out half of our position and leave the remainder on the market to capitalize on a possible extension of the up-move. For the second part of the trade you can trail your stop below the previous bar’s low and move it up as each new bull trend bar forms. The market later generated several other possible long entry positions and each one of them could have at least earned a scalper’s profit, while running very tight stops and keeping risk low.