The Forex Cash

The Forex Cash  incorporates the signals of two main indicators, the Stochastic Oscillator and the MACD. We will employ trendlines as we identify our entry points for maximal results. The Stochastic Oscillator is a momentum indicator that shows the closing price in relation to highs and lows in a given period or range. It is composed of 2 lines called the Main Stochastic and the Signal Line.There are two extreme zones in the Stochastic window, which are the oversold and overbought areas separated by horizontal lines (Image 1). The settings I use for the Stochastic are %K = 8, %D = 5, and Slowing = 5.
The MACD has three parts: a Histogram, a Signal Line, and the Zero Line (Image 2). I
use the settings of Fast EMA = 8, Slow EMA = 17, and MACD SMA = 9.
Forex Cash: Stochastic and MACD Trading
When the Stochastic reaches the 80 level or above, it is considered to be overbought, and the price would soon reverse, so you would be looking for a sell signal. When it reaches the 20 level and below, it is considered oversold. The price will soon go up, so you will be looking for a buy signal. We have a buy signal when the stochastic line (blue) crosses above the signal line (red), and you have a sell signal when the stochastic line (blue) crosses below the signal line (red). While the Stochastic is a good indicator, there are some false signals. This is because strong trends do not necessarily reverse right away when they reach the oversold or overbought areas. We need to confirm our signals with another indicator, which in this system is the MACD, or the Moving Average Convergence Divergence. The MACD is a trending momentum indicator, and its components converge (move together) and diverge (move apart) to indicate the direction and the strength of the Trend.
Forex Cash: Stochastic and MACD Trading
When the histogram crosses above the signal line, you have an uptrend, and of course, a buy signal. When it crosses below the signal line, you have a downtrend, and a sell signal. If the histogram is above the zero line, the market is trending upwards. If it is below the zero line, the market is trending downwards. You don’t really have to do all the analysis I’ve shown you. The Forex Cash Builder will do that for you. When the indicators are showing a buy trade signal, your candles will be blue in color. When you have a sell signal, the candles will be colored red (Image 3).
Forex Cash: Stochastic and MACD
To make sure we’re entering at the best signals, we will follow the direction of the long term trend. To do this, we will use a timeframe we want to trade, such as the 5 Minute (5M), and a higher timeframe to base the long term trend on, such as the 1 Hour (1H) chart. You want to wait for a signal on a higher timeframe, then drop down to a smaller timeframe to trade signals in the same direction as the higher timeframe. Supposing you see the blue candles forming on the 1H timeframe, you can now drop to the 5M and wait for blue candles to form too, if they haven’t already.
Buy Trade Rules
1. On the higher timeframe, wait for a blue candle to close.
2. Go down to a lower timeframe, wait for a blue candle to close.
3. Draw a trendline to connect the swing lows of the previous downtrend or range on the
lower timeframe.
4. Enter a buy trade if a blue candle crosses and closes above the trendline.
5. Place the stop loss below the previous swing low.
6. Place the take profit at least the same distance or twice the distance as the stop loss.
Here’s an example of a buy trade. On the GBPUSD 1 hour chart, a blue candle has
closed along the vertical line. This means we have a buy signal on both Stochastic and MACD.
Forex Cash: Stochastic and MACD
Now, we’ll go to the 5 minute timeframe to look for buy trade setups. On the 5M chart, we will wait for blue candles to form. As you can see on the image below, we have a ranging market, so we draw our trendline connecting the swing highs and wait for a breakout. Once price began to cross above the trendline, blue candles were formed. This means we have a buy signal on the 5 minute timeframe.
Forex Cash: Stochastic and MACD
As soon as the blue candle closed above the trendline, a buy trade can be entered. In this example, the entry is at 1.56382. The next step is to set the stop loss level. Here we can place it at 1.56113, which is right under the previous swing low, and 27 pips from the entry. The take profit is set at 1.56651 which is the same distance as the stop loss to the entry. Not long after, the price hit the take profit and the trade was closed in profit.
Sell Trade Rules
1. On the higher timeframe, wait for a red candle to close.
2. Go down to a lower timeframe, wait for a red candle to close.
3. Draw a trendline to connect the swing highs of the previous uptrend or range on the
lower timeframe.
4. Enter a buy trade if a red candle crosses and closes below the trendline.
5. Place the stop loss above the previous swing high.
6. Place the take profit at least the same distance or twice the distance as the stop loss.
This system can be applied to higher timeframes as well. Let’s take a look at a short
trade example. On the GBPUSD daily timeframe, the price made a peak and began to
go down. After a few bearish candles, a red candle has formed and closed. This means
our indicators are both on sell mode.
Forex Cash: Stochastic and MACD Trading
Let’s see what is happening on the 4 hour time frame. If we go down to the 4 Hour time frame, we can identify some great entries! In the image below, the red candle closed on the daily time frame along the black vertical line. If we draw a trendline across the lows of this range, we can enter a sell trade as soon as price breaks and closes below it.
Forex Cash: Stochastic and MACD Trading
On the next candle in the 4 Hour timeframe, a red candle closed below the trendline. A sell trade can be entered here at 1.61480. The stop loss should be above the previous swing high at 1.62190, which is 71 pips from the entry. The take profit can be placed at1.60770 with 1:1 risk to reward ratio.The price continued to go down and made a retracement before the take profit was reached.There are more sell trades that could be taken as long as the candles on our higher timeframe remain red. As traders, we want to be on the right side of the market when we enter our trades. This is why we look at the trend on higher time frames. We also want to be entering at the right time in the market to avoid draw downs. This is why we look at the trend on the smaller time frame, and we enter only when the candles are the same color as thehigher time frame. That means price is done retracing and it’s now moving in the direction of the longer term trend.

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