Common Indicators and Simple Trading Rules

There are a number of simple strategies we can create with the use of two or three common technical indicators. The (1-hour) chart below shows the EURJPY over the course of around 1-week's trading period. The market initially broke to the downside, as the candlestick activity remained below the 20-SMA (Simple Moving Average) and steadily following the lower Bollinger Band to new lows. Once the market reversed direction back to the upside, trading then emerged above the 20-SMA, following the upper band to recent highs. This brief example provides us with the basis for a few simple trading rules:

1. We should make every attempt to trade only in the same direction as the current trend.
2. The trend can be defined by studying the market's position in regards to the Bollinger Bands and 20-SMA.
3. Protective stops should be placed below the lower band in uptrend's, and above the upper band in downtrends.
4. Finally, we may initiate a trade at or below the 20-SMA, while taking profits at the upper band; in up trending markets. The opposite holds true in down trending markets.

This strategy may have to be adjusted depending on the currency pair and market condition, however by analyzing a segment of our charts; we can begin to isolate specific conditions telling us when to trade, and when to simply wait…