# Forex trading strategy #4-a (1-2-3, RSI + MACD)

Submitted by User on March 2, 2009 - 15:57.

Submitted by Lino

Hi Edward

I have spent a considerable time studying your strategies and i would like to share with everyone what i have taken and now apply to my trading.

Submitted by Edward Revy on March 13, 2009 - 08:23.

Hi everyone,

Let me join in with my observations.

I'll try to address all questions I saw.

1. The question from George about using Stochastic for wave counting. I talked about it somewhere on this website, but I can't find the link today, so here it goes on the screenshot above. Stochastic indicator smooths out the picture for us, showing the shapes of the past waves, which helps to count them or measure them. Because Stochastic moves with the price, it can cross over and then later straighten out, it is less helpful in telling where is the new wave will top/bottom out.

2. The question from Fraser about using SAR dots. I haven't talked about SAR dots here yet, but you've reminded me about one good trading method with SAR dots, which I will post this or next weekend (it'll be trading method #2), listed here: http://forex-strategies-revealed.com/trading-methods

3. Elliott waves. The beauty of the Lino's method is that it goes with agreement of Elliott waves theory.

Here is what I see and think of it:

Let's take the real chart screenshot above and think of 123 formation (numbered in yellow). What Elliott wave could it correspond to (presuming that we can't scroll back to analyse trends and patterns)?

Case 1: What if it is a correction wave #2?

Look at the sketch:

Wave #2 consists of abc pattern. According to Elliott, we can have either abc or abcxabc patterns. In either way. If our real chart was an abc, we could rely on the rule that wave a =

wave c (approximately) and set our minimum Take profit with the rule in mind.

Alright, let's move on.

Case 2: What if on the real chart there was the last Elliott wave #5, after which the trend had changed - the uptrend began?

We would have had the new 12345 Elliott waves.

(Please don't mix up: on the sketches I show the numbers for Elliott wave count, while on the real screenshot above I've numbered the 1-2-3 trading principle, these are not Elliott wave count!

So, returning to the case above, if that was a new uptrend start, then we would be trading on Elliott wave 3, which is never the shortest among Elliott wave 1, 3, and 5. Works for us too! We can take profits according to Lino's strategy without worries.

Let's move further again, shall we?

Case 3: Now, what if on the real chart we simply had a correction, after which a downtrend was going to be resumed?

On the sketch it would correspond to ABC in orange and circled.

Again, we would be fine, since orange wave A is expected to be equal to orange wave C.

Conclusion:

No matter which case it is, we have a winning trade with 123 method.

4. Using RSI trend line for exits. That's a popular method to keep a trade running as long as it can.

To draw a trend line on RSI, we need to connect point 1 and 3 of 1-2-3 method. As long as RSI stays above the trend line (uptrend), we keep the trade open. Make sure you wait for a candle to close and RSI to be fixed, before taking a signal.

Below I took the same screenshot and highlighted an additional 1-2-3 setup and exits with RSI trend line.

Category: Forex