Swing Strategy Basic #12: 5 SMA And 5 RSI

This is a very simple forex trading system which can also be used a a forex swing trading system.

Many times, the simplest forex trading strategies are the best.

And so the 5 SMA and 5 RSI forex trading system is one such forex system.

Forex Indicators Required: 5 SMA &  RSI (Set settings to Period 5)

Timeframes: 1hr and above (or you can use it on smaller timeframes as well)

Currency Pairs: Any

 HOW TO TRADE THE 5 SMA & 5 RSI FOREX TRADING SYSTEM

Here are a few notes before you get to the rules of the forex trading system:

• the 5SMA Indicator is for determining trend.
• if the price is is above the 5sma, it is deemed as an uptrend or downtrend if  price is below the 5sma.
• the RSI is used as a confirmation
• the RSI is a technical momentum indicator that compares the magnitude of recent gains to recent losses in an attempt to determine overbought and oversold conditions
• the RSI ranges from 0 to 100. A currency pair is deemed to be overbought once the RSI approaches the 70 level, meaning that it may be getting overvalued and is a good candidate for a pullback.
• Likewise, if the RSI approaches 30, it is an indication that the currency pair may be getting oversold and therefore likely to rally.

Buying Rules:

1.  When price crosses over 5 SMA  to the upside and that candlestick closes, check to make sure that it is more than + 10 pips up
2. Then check the RSI, it must be above RSI 50 line.
3. Buy at market or place a buy stop order 2-5 pips above the high of the candlestick
4. Place your stop loss about 5 pips below the low of the candlestick.
5. Set take profit 3 times what your risked initially or there is a previous swing high you can spot, then place your take profit target there.

Sell Rules:

1.  When price crosses over 5 SMA to the downsdie and that candlestick closes, check to make sure that it is more than + 10 pips down
2. Then check the RSI, it must be below RSI 50 line.
3. Buy at market or place a buy stop order 2-5 pips above the high of the candlestick
4. Place your stop loss about 5 pips below the low of the candlestick.
5. Set take profit 3 times what your risked initially or there is a previous swing high you can spot, then place your take profit target there.

ADVANTAGES OF THE 5 SMA AND 5 RSI FOREX TRADING SYSTEM

• A very simple forex trading system with easy trading rules 
• You can catch the beginning of a trend with the trading strategy and if you trail stop your trades, you can easily make 100+pips easily if you are trading on larger timeframes like 1hr, 4hr or daily

DISADVANTAGES OF THE 5 SMA AND 5 RSI FOREX TRADING SYSTEM 

• The biggest disadvantages with this forex trading strategy is that in non-trending markets, there will be too many false trading signals.
• Sometimes, the breakout candlestick may be too long, which may mean that your stop loss would be quite large.