3 Simple Naked Forex Trading Strategy For Beginners
No need to hesitate to try the Naked Trading strategy. With the use of Doji, Flag patterns, or candle rejection, you can apply a simple and profitable strategy.
Technical analysis should not be done excessively . Many traders instead get rid of indicators from the chart to be able to read Price Action signals more clearly and implement the Naked Trading strategy. If not sure, just try to see the experience of traders pro Barbara Rockefeller and Toni Turner . Even in the ten trading rules of Dennis Gartman , a chapter goes: The complicated system will spawn confusion, while simplicity gives birth to elegance .
Naked Trading strategy is usually ‘naked’ from the appearance of indicators such as MA, RSI, CCI, and friends. At best, Naked Trader uses a simple tool like trendline or horizontal line to mark the support resistance. Moreover, the more ‘honest’ chart and candlestick patterns reflect market sentiments relied upon as the primary ‘informer’.
Many traders already understand the benefits of Naked Trading, but not all dare to try . There are indeed already comfortable with the flagship indicators, but some are still hesitant because they must explore the theory of Price Action and Price Pattern first. Both methods do look simple, but are considered difficult to understand by some traders because it requires precision to recognize the price patterns.
Well, if you belong to the second group of traders, do not be afraid to learn to apply the strategy Naked Trading. As a prefix, you can focus on the following 3 simple techniques that are relatively easy to understand by the novice Naked Trader:
1. Breakout Candle Doji Star
The Doji candle pattern is the basic candlestick formation that is always introduced in the initial lessons of Price Action. In addition to being often found on the charts, Doji is very easy to spot. Basically, Doji is a candlestick pattern with a very small body (because Open and Close levels are very close together) and long shadows . This formation is often interpreted as a market doubt to move in a certain direction. Whether up or down, the market has no definite sentiment.
Because it only consists of one candle and scattered everywhere, Doji is rarely noticed by beginners and is not taken seriously by most experienced traders. But actually, there is a way of trading with Doji that can be relied upon. This strategy is reviewed by Justin Bennett of the Daily Price Action as an effective technical method for the Naked Trader level beginner .
First of all, it should be noted that the Doji used in this Naked Trading strategy is not just any Doji . Only Doji Star (Indecision Doji) in minimum time frame H4 meets criteria as trigger signal. If you have not understood the types of Doji and how to distinguish it, please visit the article titled Doji Candlestick Formation first.
Second, observe the location of the Doji star to determine the quality of the signal . Many traders override Doji because it is considered not reliable , but it all depends on the quality of Doji signal. Well, one of the gauges used is the position of the candle. Instead of being formed in any place, the Doji Star in these 4 key areas has a more reliable signal:
- Supported resistance level .
- Swing points in a trend.
- Bounce point in the trendline area.
- Other technical setup that shows an indication of break or bounce .
Third, wait until the next candle is closed . If the candle is close above the High Doji Star which is formed in the support area, then the next indication is the price will move up. However, if the second candle closes below Low Doji which is in the resistance area, then the next price movement is more inclined to the bearish side.
The essence of using this Naked Trading strategy is the Doji filter , because the pattern so often appears on the chart and not all have reliable signals. In addition, keep in mind that the term breakout does not refer to price breaks against important levels, but the movement of the second candle that penetrates High or Low Doji Star.
2. Flag Pattern To Recognize Trend Forwarding
If you look at Doji is too difficult because you are less painstaking look at the details of candle patterns one by one, then the strategy Naked Trading with price pattern or Price Pattern can be a solution. Actually there are many types of price patterns that can be followed , but here we will only discuss Flag patterns (flags) that can be utilized to complement the trend forwarding strategy.
Essentially, the Flag pattern is formed from the price correction amid the trend . Because the correction is opposite to the trend direction, the price seems to give a reversal signal. Though the correction is only temporary and the price will return to the main trend. When the projection is true, then that’s when the Flag pattern is confirmed.
To take advantage of this pattern, it helps you wait for the buy signal until the price confirmed to penetrate the previous High. For sell signals, you should wait until there is a breakout from the last Low. Before any candle is closed outside the High or Low, the Flag pattern will not be confirmed and the possibility of reversal is still wide open.
Unlike the Doji Star strategy that should not be applied in small time frames (H1 down), technical analysis with Flag patterns is reliable on the H1 chart. The main point of this strategy is to take advantage of temporary correction so that entry can follow the ongoing trend . So it would be very risky if you do not confirm the trending condition before identifying the Flag pattern.
3. Candle Rejection To Recognize Reversal
Candle rejection denotes a market refusal to push prices to a level lower or higher than the previous trend. For example, bullish rejection is formed with the following characteristics :
- The price is close at a level higher than Open.
- Shadow below is much longer than the upper shadow . In some cases, the bullish rejection candle does not have a top shadow at all.
While the bearish rejection has characteristics like this :
- Close price is lower than its Open level.
- The upper shadow is much longer than the bottom shadow . Bearish rejection usually also has no shadow down.
The imbalance in the candle rejection formation suggests the market’s refusal to continue the trend in the same direction . In bearish rejection candle for example, the price did record High level is much greater than Low. However, the projected increase is not met because in the end, the candle closes at a price lower than its open position. This signifies the buyer’s unwillingness to keep pushing prices up, so space for sellers to take over.
As with the Naked Trading strategy with Doji Star, there are conditions that need to be fulfilled in the use of candle rejection . For this method, what you need to pay attention to is:
- Candle rejection position . Because it indicates a market action that refuses to continue the trend, this candle formation signifies a reversal signal that usually occurs at the end of the trend. So the best bullish rejection setup is when the pattern is preceded by the bearish wave, and vice versa for bearish rejection which should be preceded by bullish movement.
- Support resistance . The limits of support resistance need to be determined and considered to get a reversal signal from the candle rejection . If the bearish rejection does not touch the resistance for example, then the inversion signal can not be said to be valid. Here is an example of candle rejection that does not form in the support resistance area.
- In trending conditions, candle rejection can be used only if the pattern appears at the end of the pullback . To simplify this observation, you can use the trendline , then note when the price tests the trendline and fails to penetrate it. If the retest is marked with a candle rejection , then it can be a fairly valid signal.
With due regard to the above conditions, here are the rules for the Naked Trading strategy with candle rejection :
- The forecast for the next bullish direction is bullish if the bullish rejection candle is formed at the end of the downtrend and the downward shadow reaches the support area. Open buy is suggested when the next candle is also bullish and penetrated the Close level of the candle rejection pattern.
- The forecast for the next price direction reads bearish if the bearish rejection candle appears at the uptrend end, with the upper shadow touching the resistance area. Open sell should be done if the next candle is also bearish and has moved through the Close of the bearish rejection .
Naked Trading Strategy Also Need Two Things It
As easy as any of your trading strategies, do not forget about setting a good Money Management (MM) and emotional control in trading . With a good MM, you can minimize loss and maximize profit according to capital capability. While emotional control helps you stay disciplined to apply your chosen strategy. Paul Tudor Jones says, “There’s nothing right or wrong in trading on any market, it’s only if your emotions are high, you’re wrong and sooner or later you’re going to lose.”
Trading forex is simple, no need to be complicated. To get the ideal strategy does not need to disassemble indicators on the chart.