Simple Trading Strategies

5 SMA With 5 RSI Forex Trading Strategy

The 5 SMA with 5 RSI Forex Trading Strategy is another simple forex strategy that beginner
forex traders can find it easy to implement.
Timeframe: Any
Currency Pair: Any
Forex Indicators: 5 SMA and RSI period settings at 5.

Brief Overview:
 The 5SMA Indicator is for determining trend so if the price is is above the 5 SMA, it is an
uptrend or downtrend if price is below the 5 SMA.
 The RSI is used as a confirmation signal. 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 its time to look for a
sell opportunity.
 On the other hand, if RSI approaches 30, it is an indication that the currency pair may be
getting oversold and therefore likely to rally so its time to be looking for a buy opportunity.

5 SMA WITH 5 RSI FOREX TRADING

STRATEGY RULES
Refer to this chart for how to buy and sell using this strategy. The rules are below this chart:
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.
READ 200 EMA Multi-Timeframe Forex Trading Strategy

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.

DISADVANTAGES OF THE 5 SMA AND 5

RSI FOREX TRADING STRATEGY
As usual, every forex trading strategy has it weakness:
 SMA’s are lagging forex indicators which means that this forex trading strategy will
generate too many false trading signals in flat or non-trending market.
 Sometimes, the breakout candlestick may be too long, which may mean that your stop loss
would be quite large.

ADVANTAGES OF THE 5 SMA AND 5 RSI

FOREX TRADING STRATEGY
 A very simple forex trading strategy that comes with an easy to spot trading setups which
are easy to execute.
 This is a trend trading forex strategy so if 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
 Guide 2

5×5 RSI Trading System – Complete Trading

Details
The RSI trading indicator is a price momentum measure that also uses overbought and oversold
zones to show when markets may be overextended. It makes up many trading methods and we are
going to use it with our 5×5 RSI Trading System.
RSI = Relative Strength Index
The RSI, although referred to as “index” is not really an index so the name is a little misleading.
Just think of the RSI indicator as an oscillator that measures momentum over a set period (look
back period) and will indicate when the momentum has pushed price to far in one direction
(oversold/overbought).

Oversold And Overbought

Oversold is a term that is used when price is deemed to have fallen a certain distance away from the
average price. This is a condition that is measured by the RSI dipping below level 30 on the
indicator and is used in conjunction with a trading setup, usually a buy signal.
Overbought is the opposite of oversold.
When price has risen a distance from the average price, it can be deemed to be overbought and the
RSI will be above the 70 level. Depending on the trading system, when the RSI is above the 70
level, the strength of price is considered to have been strong and a reversion is expected. This will
set up a sell signal for most RSI trading systems.

What Does “5X5” Stand For?

Quite simply, it makes up the settings for the two trading indicators that will be used in the strategy:
1. 5 period lookback setting for RSI – We will use levels 30,50,70.
2. 5 period simple moving average (SMA)
Other initial details about the trading strategy:
Time Period – Any time frame can be used including short term for day trading or longer term
charts for a swing trading approach with the 5X5 RSI trading system.
Currency Pairs – You can use any Forex pair you like however keep spread costs in mind if
considering trading the exotic currencies.
How To Trade The 5X5 RSI Trading System – Forex Example
Here are a few notes before you get to the rules of the Forex trading system:
 the 5 SMA Indicator is for determining trend direction
 if the price is is above the 5 sma, it is deemed an uptrend or downtrend if price is below the
5sma.
 the RSI is used as a confirmation

Here is a sample buy signal

RSI TRADING SYSTEM – BUY SIGNAL SETUP

Buying Rules:
1. Price closes above the 5 period SMA and is an obvious bullish candlestick
2. RSI is above the 50 level. If this is the first cross over after a downtrend, that’s even better.
3. Place a buy stop above the bull candle
4. Place your stop loss about 5 pips below the low of the candlestick depending how your risk
parameters.
5. You can set profit targets, trail stop once price moves in your favor. Many ways to take
profits.
The sell signal is opposite that of the buy set up just discussed.
RSI trading method short trades
Sell Signal Rules:
1. Price closes below the 5 period SMA and is an obvious bearish candlestick
2. RSI is below the 50 level. If this is the first cross over after an uptrend, that’s even better.
3. Place a sell stop below the bear candle
4. Place your stop loss about 5 pips above the high of the candlestick depending how your risk
parameters.
5. You can set profit targets, trail stop once price moves in your favor. Many ways to take
profits.

Using RSI To Trade – Important Points About This System

Remember that the RSI is a trading indicator, will lag price, and although objective, price action
trading can help improve this system. Using price movement, especially how strong the candlestick
closes, can bump up the edge you can have. You want to see strong closes or, as shown in the sell
signal at #1, using price patterns such as inside bars and break from compression can help improve
the system.
If you chose to take more trades after the original trend change trade, you may want to see that the
RSI indicator has dipped into oversold or overbought territory. This often times will set up a
pullback in the price that can aid in triggering another trade depending on how deep price moves.
Use stop orders for your entries as this will show that at least in the short term, momentum is in
your favor.
There may be times that the candlestick that gives the buy or sell signal is quite large. Either reduce
position size or wait until there is a pause or retrace in price.
There will be times that the RSI flips back and forth over the 50 line. This indicates choppy price
action and you may want to highlight that price action with lines to show a pattern break.

RSI AND CHOPPY PRICE ACTION

Regardless of the time period you trade, you will run into issues such as price action that indicates
chop. You do not want to implement this strategy during those times. Use standard price patterns
to contain price movement and wait for the break of the price pattern to occur.
Once the break occurs, return back to the rules for the RSI trading system.