The basic foundation of our trading strategies is to find as many “elements” as possible to determine if a level is good to trade from. There are many camps of people who use different forms of technical analysis to trade the markets. The more you get on your side, the higher your chances are on trading profitably. For example :
- Support and resistance camp = 30%
- Fibonacci retracement camp = 15%
- Fibonacci extension camp = 10%
- Stochastic camp = 5%
- RSI camp = 5%
The more camps of analysis you use correctly, the higher your chances are on trading profitably. For example, if you used just plain support and resistance, you would perhaps have a 30% chance of getting your trades right. But when you combine it with fibonacci retracements and extensions, you increase your chances to 30 + 15 + 10 = 55% That is the basic crux of how we plan our strategies here at The Forex Army.
Based on this theory, I have heard people ask why not just add every single indicator and study out there to increase your chances to 100%. This is a valid question – and the answer comes in 3 forms :
- There are some indicators and studies which are useful, and there are MANY which are not useful. For example, Gann angles are ridiculous – they were derived from astronomy and has been proven time and again to be ineffective. It’s important that we don’t add in such useless indicators to our strategies. They say too many cooks spoil the soup – the same goes for strategies. Too many indicators spoil the strategy.
- Many indicators tend to say the same thing, just slightly differently. For example, Stochastic and RSI and MACD can all say that a currency pair is overbought and oversold. But essentially, it’s effectiveness is only based on 1 indicator saying 1 thing.
- Many indicators do not complement each other. Some indicators tell you when a market is trending and some tell you when a market is about to reverse (contrarian style of trading). We trade both styles and each style uses different approaches. For example, an Ichimoku cloud could tell you when a market is trending (like when price is above the cloud), but if you’re trying to play a big reversal, this doesn’t help much and in fact contradicts your strategies.
We break down our strategies to 3 stars. The more stars there are, the better the strategy gets (and hence the more you would naturally risk on that trade).