Simple Long-Term Crossover Forex Trading Strategy

Many people have this notion that trading is complicated. People think that trading the forex market requires a mind of a genius. Although trading does require a certain degree of mental capacity, it does not require a genius to trade the market.

Other people also have this misconception that trading strategies need to be complicated in order to work. Although trading strategies do need to have some thought put into it, it does not have to be overly complicated. There are complicated strategies that work and those that don’t, just as there are also simple strategies that work and those that don’t.

Crossover strategies are probably the simplest type of trading strategies that traders could use. Although there are instances wherein crossover strategies would not work, there are also conditions which is prime for a crossover strategy to profit from.

Simple Long-Term Crossover Forex Trading Strategy is just as its name suggests. It is a simple crossover strategy that is aligned with the long-term trend. This type of strategy provides a trend reversal entry on a mid-term trend, which is also aligned with the long-term trend. The resulting entry signals tend to yield better results compared to most crossover strategies.

This strategy makes use of two custom technical indicators which are modified moving averages. This pair of moving averages work well when used to identify trends that are based on the mid-term and long-term trends.

Individually, both these indicators could be used to identify trend direction and trend reversals. Traders could identify direction based on the location of price in relation to the moving average lines. Trend direction could also be based on the slope of the moving average line. However, these moving average lines would be limited if used alone. If used together, these moving average lines could provide trade signals that are based on mid-term trend reversals.

2PBLDEAL3MA

2PBLDEAL3MA is a custom moving average indicator which is a component of another signal indicator.

It is a modified moving average line which detects the mid- and long-term trend. It is characteristically very smooth, making it a good signal line type of moving average.

MALRFast

MALRFast is a custom indicator which is a modified moving average line indicator which helps traders identify trend direction.

This moving average line is very responsive to price changes and hugs price action quite closely. This indicator works well when set on the short or mid-term periods as it could quickly follow price movements and provide trade signals accordingly.

Trading Strategy

This trading strategy is a simple crossover strategy based on the two modified moving average lines discussed above. What is different with this strategy is that instead of taking any trade that is presented by the crossover of the two moving average lines, trades are aligned with the long-term trend.

The 200-period Simple Moving Average (SMA) is used to identify the long-term trend. Trend direction is based on the location of price in relation to the 200 SMA. The 200 SMA line should also be sloping in the direction of the trend.

As soon as we identify the long-term trend, we will only be looking for trades that are in line with it.

Trade signals are based on the crossover of the moving average lines. In this setup, the MALRFast would be the faster moving average line, while the 2PBLDEAL3MA would be the slower moving average line. Trade signals are considered whenever the MALRFast line would cross over the 2PBLDEAL3MA line towards the direction of the trend.

Aside from the actual crossover, traders should also objectively identify the direction of price action based on the candlestick patterns. This could either be signs of price rejection on the area of the moving average lines or momentum candle pushing towards the direction of the trend.

Indicators:

• 200 SMA (brown)
• MALRFast (default setting)
• 2pbldeal3MA
  • x1: 1.0
  • x2: 0.4
  • z1: 0.3
  • z2: 0.3

Preferred Time Frames: 30-minute, 1-hour and 4-hour charts

Currency Pairs: major and minor pairs

Trading Session: Tokyo, London and New York sessions

Buy Trade Setup

Entry

• Price should be above the 200 SMA line.
• The 200 SMA line should be sloping up.
• Price should be trending up.
• Price should temporarily retrace or contract causing the MALRFast line to temporarily cross below the 2PBLDEAL3MA line.
• Enter a buy order as soon as the MALRFast line crosses back above the 2BPLDEAL3MA line.

Stop Loss

• Set the stop loss on the fractal below the entry candle.

Exit

• Close the trade as soon as the MALRFast line crosses below the 2PBLDEAL3MA line.

Sell Trade Setup

Entry

• Price should be below the 200 SMA line.
• The 200 SMA line should be sloping down.
• Price should be trending down.
• Price should temporarily retrace or contract causing the MALRFast line to temporarily cross above the 2PBLDEAL3MA line.
• Enter a sell order as soon as the MALRFast line crosses back below the 2BPLDEAL3MA line.

Stop Loss

• Set the stop loss on the fractal above the entry candle.

Exit

• Close the trade as soon as the MALRFast line crosses above the 2PBLDEAL3MA line.

Conclusion

This simple crossover strategy works well because it is aligned with the long-term trend, which is based on the 200 SMA line. If zoomed out on a higher timeframe, the long-term trend of the forex pair would be clearly observed. Because trades are in line with the general trend direction, crossover trades tend to produce good results.

However, as with most trend following strategies, this strategy should not be used in a choppy or ranging market. Traders should correctly identify the trend direction based on price action and trade accordingly.

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