Lazy Trade Forex Trading Strategy – Version 2

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Lazy Trade Forex Trading Strategy – Version 2

Previously we’ve discussed regarding the first version of the Lazy Trade Strategy. It covered a strategy that uses the Heiken Ashi Smoothed indicator and the 200 EMA as our long-term trend bias filter. One of our main takeaways with that strategy is regarding how clear short-term trends seem to be using the Heiken Ashi Smoothed indicator.

Continuing on with this series of strategies, let’s explore how else we can use the Heiken Ashi Smoothed indicator to help us get into trades that are high probability.

With the second version of the strategy, we won’t be using the 200 EMA long-term trend filter. Instead, we will be taking trades both ways. We will have no bias regarding whether we think price is going up or down. What we will be concerning ourselves with is how we will respond to the market and get into trades if it hits certain levels that many big institutional players look at.

Many big institutional players look at certain levels in the market which they are willing to trade at depending on how the market is moving around those levels. However, most newbie traders who are still learning the ropes on how the market works don’t have a clue how they would determine these levels. To help us determine what levels we should be looking at, we will be using the Pivot Points indicator.

Pivot Points are basically mathematically computed support and resistance areas set at different levels. It consists of five or seven different levels with the middle level as the pivot point, depending on the settings of the indicator being used.

Below is an example of a chart with a Pivot Point indicator.

lazy trade forex trading strategy version 2 01

The yellow line would be the pivot point, while the red lines would be resistance 1 & 2 (R1 & R2), and the blue lines would be support 1 & 2 (S1 & S2).

Notice the price action as price nears those areas. Sometimes price bounces off, whipsaw around those areas as bulls and bears fight it out, or punch through it for a breakout when momentum is strong.

The wonder of it is that it usually works. This is probably because this is what many of the big institutional traders are also looking at. You would often hear professional traders, both retail and institutional say that price is nearing an area of support or resistance or is nearing the pivot point.

There are many different Pivot Points indicators with different settings and formulas. Some are daily pivots, others weekly, and some are monthly. It is best to try to eyeball or even back test the pivot point indicator you will be using if price does tend to respect those areas as support and resistance. The candle close of your broker, as well as the timeframe you are trading would also have an effect on how price behaves around those areas.

The Setup: Trading Pivot Point Bounces with Heiken Ashi Smoothed Indicator

The strategy for Lazy Trade 2 will be to trade bounces off the pivot point areas with the Heiken Ashi Smoothed indicator as a confirmation. Our charts should look something like the chart below.

lazy trade forex trading strategy version 2 02

Buy Entry:

  • Observe price as it nears areas of support (blue lines) or the area around the pivot point, coming from above.
  • Price should somewhat show signs of bouncing off these areas.
  • Take the trade as soon as the Heiken Ashi Smoothed indicator turns blue.

Stop Loss: Set the stop loss a few pips below the entry candle or the Heiken Ashi Smoothed candle.

Exit: Trail the stop loss below the Heiken Ashi Smoothed indicator until stopped out in profit.

lazy trade forex trading strategy version 2 03

Sell Entry:

  • Observe price as it nears areas of resistance (red lines) or the area around the pivot point, coming from above.
  • Price should somewhat show signs of bouncing off these areas.
  • Take the trade as soon as the Heiken Ashi Smoothed indicator turns red.

Stop Loss: Set the stop loss a few pips above the entry candle or the Heiken Ashi Smoothed candle.

Exit: Trail the stop loss above the Heiken Ashi Smoothed indicator until stopped out in profit.

lazy trade forex trading strategy version 2 04

Conclusion

The Heiken Ashi Smoothed indicator on itself is already quite effective in determining short-term trend directions. But couple it with the Pivot Point indicator and it becomes even more powerful.

What this strategy is trying to do is to imitate what the big players are doing, reading the price action around areas of support and resistance. However, reading price action doesn’t come easy for most beginning retail traders. This strategy simplifies it by having the entry signal dictated by the Heiken Ashi Smoothed indicator. However, what this does is that we tend to enter the trade a little later than those who are reading price action alone. This is fine if the bounces off the pivot point areas have momentum, thus causing the price to travel a little farther in our favor. However, if price bounce off with little momentum, sometimes we could end up with a little loss. Those who read price action alone though would have entered at a better price and squeezed a bit of profit on those types of trades. With this said, it is also good if we would learn price action and combine it with this strategy.

Another thing to look out for is that as soon as we are in a trade, we would have to observe price as it nears the opposing areas of the pivot point indicator, as price may reverse around these areas. Again, this requires some knowledge with price action.

Another tip would be that R2 and S2 bounces have higher probabilities of a profitable trade, since we will be entering the trade when price is still quite far from the opposing areas.

All in all, this strategy is an excellent strategy for those who would want to trade reversals of supports and resistances, but still hasn’t learned the ropes on price action. So, to wrap this up, think of this strategy as a training wheel while still learning price action.

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