Forex Trading – Simplicity in Two Colored Lines

I am forever looking for new indicators that work well together and confirm each other. Indicators can show that either a trend is in place or that price direction is changing and a new trend is starting, or there is no trend and prices are rangebound.

Early in my trading career I often fell prey to ‘analysis paralysis’… being so overwhelmed with information from many different indicators that it was nearly impossible to reach any kind of decision that I could act on with confidence. As I’ve matured in my trading career I’ve come to appreciate simplicity. More is not necessarily better…and simple is good…as long as it’s effective.

You may have seen the ‘forex sniper’ indicator. It’s a line that changes color to show whether prices are moving up or down. Usually green is up and red is down. If direction is indecisive the line turns yellow. As with most MT4 indicators you can change these colors to anything you like. Recently I’ve come across two such lines. Together they make for a trading system that is so simple it’s stupid – and it can be used on any timeframe.

The first line is the Non-Lagging Adaptive Moving Average (NLADA) with a value of 45. We’ve looked at the NLADA before in conjunction with the Beginners Alert. The second line is called the “LSMA in Color”. I’m reasonably sure the MA part stands for Moving Average. I have no idea what LS means. In any event the value for this one is 34. These values are adjustable as well.

As I’ve tinkered with these two I’ve added and subtracted other indicators to complement them: EMA Crossover Alerts, MACD, Awesome Oscillator, RSI, Stochastics, CCI – the gamut. When all the dust is settled I find they work best by themselves without all the additional noise created by additional indicators.

It’s easy enough to figure out that when both lines are green you want to be long. When they’re red, you’re short. I have found these are as effective in shorter timeframes as in long. You can trade the M15 or the H4 equally well. If you’re fortunate enough to be able to sit in front of your computer for a while during the London and New York trading sessions, great. If not then you’ll have to devise a plan to trade when you can’t be staring at your computer screen non-stop.

Using a signal provider a few years back I learned this staggered approach. Let’s say both lines have just turned green so you’re contemplating a long trade. The angle of the lines is important. If they’re moving laterally that shows no real trend. You want them pointing upward at a clear angle, say 40 to 50 degrees or more is ideal. What ever number of lots you decide to trade – divide that into thirds.

Let’s say you are trading ten mini-lots. For the first four mini lots place a profit target of 10 pips. For the next three mini lots the profit target is 20 pips. For the final three mini lots place no target but add a trailing stop lost of 10 or 15 pips. The overall stop loss for this trade is just below the bottom bar/candle of the recent low. With this arrangement your upside potential is significant while your downside risk is limited.

Remember, you can do very well earning just 10 pips a day. You compound that over a period of time and you’ll be in good shape before too long. As always, it’s a good idea to trade only in the direction of the overall trend. If the longer-term trend is up, then skip the short trades. They’ll tend to be short and weak. This approach is popular because it doesn’t take a rocket scientist to understand it. This is not brain surgery. Anyone, even the novice trader, can understand and implement this.