To be honest, I've fallen into traps before, especially with high-risk plays like 100x contracts. At first, I thought this was a 'death sentence', but later I found out that it was actually my most profitable and highest winning rate venture.
Why? Because I inadvertently discovered my own way to play:
1. Fixed principal: The money I use to play contracts never changes, for example, one account has 300U. The maximum loss is 300U, but when the market is good, I can earn tens of thousands of U. The risk is manageable, and the potential profit is large enough.
2. Test with small money: I started with very small orders, just a few bucks or so. Just like stock trading guru Livermore said, you need to make a profit at the beginning to maintain a stable mindset.
3. Add when you earn: Only when I make money and see the trend clearly do I take profits to add to my position. Do not add if not profitable, and do not act recklessly if losing; preserving capital is the priority.
4. Flexible stop-loss: Adjust your stop-loss line as market conditions change, never allowing your capital to be hurt. This keeps my mindset steady and prevents me from being scared off by the market.
These few points may sound simple, but they have saved me many times. In fact, even without trading contracts, trading low-leverage coins can still utilize this logic.
Also, be sensitive to hot spots; what really motivated me was the inscribed area, where I participated early with friends and reaped significant rewards. Later, while you all were still in FOMO, we had quietly exited.
Newbies, don't rush in; investing has risks.
Contracts are not a joke; don't believe any 'master' who says they can make you rich overnight. I don't have any secrets that will make you rich just by listening; if I had that ability, I would have retired long ago. Still, the same saying: investing has risks; be cautious when entering the market.
Good position management means you've succeeded 90%; the six basic principles of position management:
First: Do not operate a full position; always maintain a certain proportion of backup funds.
Second: Buy and sell in batches to reduce risk, average costs, and amplify profits. The advantage of buying down in batches and selling up in batches is that your average price will be lower than others, leading to higher profits.
Third: In a weak market, hold lightly; during bear markets, it is best not to exceed half a position. In strong markets, you can increase your position moderately; in bull markets, the suggested maximum position is 8 layers, with the remaining 20% as short-term or backup funds for unexpected occurrences.
Fourth: As market conditions change, make corresponding adjustments to your positions, appropriately increasing or decreasing your holdings.
Fifth: During market stagnation, it is advisable to stay out of the market temporarily and wait for opportunities to arise.
Sixth: Reallocation: Retain strong currencies and sell weak currencies.
The above six principles apply to both spot and contract trading; if you still do not understand, please read carefully several times, reviewing and learning can help you become a mentor!
Now let’s discuss methods of position management, specifically batch operations.
Batch operations refer to dividing invested funds into segments, executing buying, adding, or reducing positions in batches. Batch operations can be completed in one day or over a period of time.
Why do these actions? Because the cryptocurrency market is volatile, with price rises and falls being high-probability events. No one can accurately predict short-term price fluctuations, so sufficient funds should be reserved to cope with unpredictable volatility.
If you operate a full position without sufficient assurance, a sudden opposite market change can lead to significant losses. Thus, employing a staggered approach can reduce the risk of full capital exposure, allowing for cost averaging, which is the foundation for lowering costs and amplifying gains.
Next, let's talk about how to batch: divide into equal batches and non-equal batches.
First: Equal distribution, also known as the rectangular trading method, refers to dividing funds into several equal parts and sequentially buying or selling, with each transaction maintaining the same proportion of funds. Usually, 3 or 4 equal parts are used. For example, buy 30% first; if profits begin, buy another 30%; if not profitable, temporarily refrain from new investments. When the price of that coin reaches a certain high point or the trend changes, gradually reduce positions and sell.
Second: Non-equal distribution, referring to dividing funds into varying proportions for buying or selling, such as ratios of 1:3:5, 1:2:3:4, 3:2:3, etc. The resulting shapes based on the ratios can be classified as diamond, rectangle, hourglass, etc., with the pyramid trading method being commonly used.
Third: Equal funds, equal positions, using different methods for comparison.
Pyramid: buy 5 layers at 1000, buy 3 layers at 1100, buy 1 layer at 1200, average price 1055.
Inverted pyramid: buy 1 layer at 1000, buy 3 layers at 1100, buy 5 layers at 1200, average price 1144.
Equal parts rectangle: buy 3 layers at 1000, buy 3 layers at 1100, buy 3 layers at 1200, average price 1100.
When prices rise to 1200, profits are: Pyramid 145, Inverted Pyramid 56, Rectangle 100.
Losses when the price drops to 1000: Pyramid +55, inverted pyramid -144, rectangle -100.
By comparison, the pyramid cost is minimal, yielding greater profits when prices rise. When prices fall, it bears greater risk. The inverted pyramid is the opposite; if the price falls to 1000, the inverted pyramid loses 144. In practical application, buying should be done using the regular pyramid method, while selling should use the inverted pyramid method for better reasoning.
After a significant drop in prices, when uncertain if a bottom has been reached, buying at this time may lead to being trapped if prices continue to fall. Conversely, if not buying, there is the worry of missing out on a potential upward reversal; hence, the pyramid building method can be employed.
For example:
When a coin drops to the 10U position, buy a 20% position; when the price falls to the 8U position, then enter 30%. At this point, the average cost is 8.6U.
If the market continues to fall to 5U, then enter 40%, averaging to 6.5U.
If the price rebounds to 6.5 yuan, that is breakeven. If it rebounds to 10U, it means a profit of 3.5U. But if you invest fully at 10U, when the price returns to ten yuan, you just break even.
During the price increase process, the lower the price, the larger the position should be when buying; as the price gradually rises, the position should gradually decrease. This method of buying belongs to right-side position building. Such costs are relatively safe; even if the market declines, as long as it does not breach the holding cost, there is no need to panic.
This method requires a heavier initial position, so the requirements for first-time entries are higher and suitable for technical players.
The inverted pyramid selling method, in contrast to the regular pyramid, has a wider top and narrows downward, resembling a funnel. As the price of the coin rises, the number of coins held gradually decreases, meaning that the amount of coins sold increases as the price rises. This is the method for reducing positions or liquidating.
The core of position management is the above points; once understood, I believe that in the future, regardless of whether it is spot or contract positions, you will have a clear approach.
I have been trading cryptocurrencies for over 10 years; starting with 50,000 in the market, I now make a living trading cryptocurrencies. I can say that I have used about 80% of the methods and techniques in the market, but the following indicators are the most practical, having caught many tenfold and hundredfold coins! Ignoring this graphic can cost you at least 20% of your profits!
If you want to treat trading as a second profession to support your family, you must study this article seriously to avoid making mistakes for at least 10 years!
After reading this article, you will discover a powerful trading method that combines the 20-period simple moving average (SMA) and the relative strength index (RSI) indicator. This strategy provides clearer entry signals and helps confirm market momentum before you invest funds. By combining these two complementary tools, you will filter out market noise and focus on high-probability trading opportunities. The advantage of this strategy is its versatility across different time frames and currency pairs — but there is a specific way to coordinate these indicators for maximum effect.
20 SMA and RSI forex trading strategy.
When looking for a reliable and uncomplicated forex trading strategy, the method of combining the 20 SMA with the RSI is an excellent choice.
This method combines two powerful indicators that complement each other perfectly.
This strategy identifies trends through the 20-period simple moving average while using the RSI to confirm momentum.
The 20 SMA is used to identify trend direction, while the RSI verifies potential momentum, leading to more accurate trading decisions.
You will find that SMA crossover signals are particularly helpful in determining entry points, while RSI divergence analysis aids in predicting potential reversals.
What sets this method apart is its simplicity.
You do not need advanced technical skills; just follow clear trading rules.
To enhance performance, consider using support/resistance reversals as additional confirmation points to plan your entry.
Understand the core components of the 20 SMA strategy.
The core components of the 20 SMA and RSI strategy are built on the principles we just discussed.
When applying this method, you will find that various SMA variants can improve your trading decisions. Some traders prefer using the 15 SMA for faster signals, while others may choose longer periods for smoother trends. A 15-minute chart offers day traders the ideal balance for quickly gaining market insights while maintaining sufficient data for reliable analysis.
Adjustments to the RSI are equally important — changing the recommended 5-period setting to 7 or 14 periods can significantly affect its sensitivity.
Remember that these components work synergistically as a system, not in isolation. The key is to find combinations that match your trading style and time frame while maintaining the core advantage of the strategy in trend identification.
Set up the chart for maximum effect.
Correctly setting up the chart is crucial to the success of the 20 SMA and RSI strategy.
First, choose your preferred time frame. This strategy is applicable to any time frame, but 4-hour or daily charts typically yield more reliable signals.
In the chart layout, add a 20-period simple moving average and set the RSI indicator to 5 periods.
These specific indicator adjustments are non-negotiable for the correct functioning of this strategy. Ensure that the RSI has a visible 50 level line, as this is an important threshold for your trade confirmations.
The 20-period SMA will help identify medium-term trends while filtering out unnecessary market noise.
The psychology behind price action and moving averages.
Understanding why the market reacts to moving averages reveals deeper psychological forces driving forex trading.
Moving averages are not just about tracking prices — they reveal the collective psychology shaping market behavior.
When the price approaches the 20 SMA, traders make collective decisions based on their expectations of support or resistance.
This market psychology is reflected in price action — the visible footprint of all buying and selling decisions.
You will notice that the price often rebounds from the 20 SMA like magic.
However, this is not magic; it is the collective effect of thousands of traders seeing the same signals and taking similar actions. Looking left, you may notice the support/resistance structure that the price is reacting to.
Experienced traders often combine moving average crossover strategies to complement this analysis, confirming potential entry and exit points in trending markets.
Optimize RSI settings for the best signals.
While many traders use the default RSI settings, customizing the RSI parameters to 5 periods (instead of the standard 14 periods) can significantly enhance the sensitivity of signals in this strategy.
This shorter period makes the RSI more sensitive to recent price changes, helping you catch trends earlier.
For ideal RSI settings, always use 50 as the central threshold line.
When the price hits new highs but the RSI does not, pay attention to RSI divergence analysis — this often signals a reversal.
When fine-tuning settings, remember that more sensitive indicators require greater attention to filter out false signals.
Combining the 5-period RSI with the 5 SMA strategy can provide higher precision entry points for short-term trades.
Entry rules under bullish trend conditions.
When bullish trend conditions emerge, knowing when to enter can enhance your profit potential. Every strategy requires an appropriate entry strategy.
First, you need to confirm two key entry indicators: the price must be above the 20 SMA, and the RSI should be below 50, having bottomed and begun to reverse upwards.
Wait for the price to pull back to the 20 SMA, at which point the 20 SMA acts as dynamic support. The key point — look left to find some price structure support (such as trading ranges or swing lows).
Once you see a confirmed candlestick pattern forming, set your buy stop order above its high.
This systematic approach ensures you enter amid trend momentum while leveraging market conditions to your advantage.
Entry rules under bearish trend conditions.
To profit under downtrend conditions, you need to follow specific entry rules to capitalize on downward momentum.
First, confirm that the price is below the 20 SMA, indicating a downtrend. Observe the price bouncing back from below and testing the 20 SMA.
Watch for bearish divergence signals on the RSI, where the RSI should peak above 50 and begin to reverse downwards. This market trend analysis helps identify suitable entry points.
Set your sell stop order below the confirmed candlestick's low, with the stop-loss set above its high.
To further validate, look for reversal candlestick patterns at resistance levels to strengthen your bearish entry signal.
Techniques for minimizing risk through stop-loss settings.
In forex trading, proper stop-loss settings are the foundation of effective risk management.
When using the 20 SMA and RSI strategy, always set the stop-loss for sell positions above the high of the entry candlestick or set the stop-loss for buy positions below the low of the entry candlestick. This protects you from sudden market reversals.
Combine stop-loss with position size management to ensure that the risk you take in any single trade does not exceed 1%-2% of your account.
This dual approach minimizes your risk exposure while allowing enough room for profitable trades to develop into winning positions.
Consider using the Average True Range (ATR) indicator to dynamically adjust stop-loss distances based on current market volatility.
Take-profit strategies to maximize profits.
When trading the 20 SMA and RSI strategy, you need to implement effective take-profit techniques that align with market conditions. Setting take profits at three times the risk amount can create a favorable risk-reward ratio, maximizing gains while maintaining discipline. I should add that I am perfectly fine with a 1:1.25 risk-reward ratio since these smaller gains are often more stable.
Additionally, you can exit when an opposite signal appears. In a strong trend, consider using a trailing stop to lock in profits as the market moves in your favor. Similar to island reversal patterns, understanding the market context is crucial for determining the most appropriate exit strategy.
Trading plan: 20 SMA and RSI forex trading strategy.
Entry rules for bullish trades (buying).
1. Trend confirmation: Ensure the price is above the 20 SMA, indicating an uptrend.
2. RSI signal: Confirm that the RSI has bottomed below 50 and is starting to reverse upwards.
3. Pull back to the 20 SMA: Wait for the price to pull back to the 20 SMA, at which point the 20 SMA acts as dynamic support.
4. Confirm candlestick patterns: Look for bullish candlestick patterns (e.g., engulfing pattern or pin bar) forming near the 20 SMA.
5. Entry execution: Set a buy stop order above the confirmed candlestick high.
Entry rules for bearish trades (selling).
1. Trend confirmation: Ensure the price is below the 20 SMA, indicating a downtrend.
2. RSI signal: Confirm that the RSI has peaked above 50 and is starting to reverse downwards.
3. Pull back to the 20 SMA: Wait for the price to rebound to the 20 SMA, at which point the 20 SMA acts as dynamic resistance.
4. Confirm candlestick patterns: Look for bearish candlestick patterns (e.g., engulfing pattern or pin bar) forming near the 20 SMA.
5. Entry execution: Set a sell stop order below the confirmed candlestick low.
Stop-loss settings.
Bullish trades: Set the stop-loss below the confirmed candlestick's low.
Bearish trades: Set the stop-loss above the confirmed candlestick's high.
Take-profit strategies.
Set at least a 1:3 risk-reward ratio (for example, if the risk is 20 points, the target profit is 60 points).
Alternatively, use a trailing stop to lock in profits as the trade moves in your favor.
If the RSI shows divergence from the price trend, exit the trade, which signals a potential reversal.
Additional notes.
This strategy performs best on 4-hour and daily charts.
Avoid trading during major news events to reduce the risk of false signals.
Use candlestick patterns (e.g., pin bar, engulfing pattern) as additional confirmation for entry signals.
By following these precise entry and execution rules, you can confidently implement the 20 SMA and RSI strategy in your trading plan.
Adjusting the strategy across different time frames.
The flexibility of the 20 SMA and RSI strategy extends beyond take-profit methods and can apply to various time frames.
The adaptability of this strategy means you can engage in quick intraday trading on a 15-minute chart or hold long positions on a daily chart.
When adjusting time frames, remember that higher time frames typically produce more reliable signals but offer fewer trading opportunities.
Lower time frames provide more frequent setups but may produce more false signals.
Try starting with the 4-hour chart to balance reliability and frequency while building confidence in this strategy.
When trading this strategy, be wary of false breakouts, as the market often tests above critical levels to trigger stop-loss orders before reversing.
Currency pairs best suited for this system.
The four major currency pairs perform exceptionally well in the 20 SMA and RSI strategy: EUR/USD, GBP/USD, USD/JPY, and USD/CHF.
These currency pairs offer ideal trading conditions due to their liquidity and predictable trend behavior.
Major currency pairs provide the perfect combination of liquidity and predictable trends for effective technical analysis.
You will find that EUR/USD is particularly suitable for beginners due to its combination of stable movement and controllable volatility.
GBP/USD performs well during the London trading session, while USD/JPY excels during the Asian trading session.
To achieve the best results, avoid trading exotic currency pairs that may produce unstable signals (i.e., foreign currency pairs. These pairs are typically made up of one major currency paired with a currency from an emerging economy. Examples include USD/RUB, USD/ZAR, etc.).
Stick to using major currency pairs, as price action aligns more reliably with the 20 SMA, creating clearer buying and selling opportunities.
These major currency pairs also allow for more effective stop-loss placements when trading support and resistance levels.
Screen trades during major news events.
When trading using the 20 SMA and RSI strategy, you should be cautious to avoid entering before or during major news events. News impacts can lead to sudden and unpredictable price fluctuations, causing technical analysis patterns to fail.
Pause trading at least 30 minutes before the release of major economic data (e.g., interest rate decisions, non-farm payroll reports, or GDP announcements).
Resume trading 30-60 minutes after the event ends, waiting for volatility to settle down. This precaution helps prevent stop-loss triggers caused by news-related volatility rather than genuine trend changes.
Your strategy performs best under normal market conditions when price movements follow more predictable patterns.
Identify and avoid false signals.
Just as you screen trades during major news events, identifying false signals is another skill crucial for successfully trading the 20 SMA and RSI strategy. A false breakout occurs when the price briefly breaks above the 20 SMA but quickly reverses, trapping careless traders who mistakenly believe the trend has changed.
To avoid these issues, always wait for signal confirmation before entering. Look for candlestick closing prices (not just shadows) to break the SMA.
Ensure the RSI trend aligns with price action — if divergence occurs, exercise caution.
Do not rush to enter the market. A few seconds of patience can avoid costly mistakes.
Use candlestick patterns to improve outcomes.
Combining candlestick patterns with the 20 SMA and RSI strategy can significantly improve your trading results.
Candlestick psychology reveals market sentiment often overlooked by traditional indicators. When the price approaches the 20 SMA, look for specific patterns to confirm your entry signals.
1. Doji pattern: A doji appearing near the 20 SMA indicates market indecision and may signal a reversal point, providing you with earlier entry opportunities than using the RSI alone.
2. Engulfing pattern: Indicates a strong momentum shift, confirming the importance of the RSI signal.
3. Pin bar: A pin bar that points in the direction of the trend and touches the 20 SMA forms a strong resistance rebound signal that should not be ignored.
Strategy evaluation.
Successful traders recognize that measuring performance is not just about tracking profits and losses. You need specific metrics to truly understand whether the 20 SMA and RSI strategy is effective.
First, evaluate your win rate, risk-reward ratio, and maximum drawdown. These metrics provide clearer understanding than just account balance.
To measure performance, keep a trading log of your trades, noting the reasons for entry and market conditions.
Strategy optimization is not a one-time task. Regularly review your results, identify patterns in winning and losing trades, and make small adjustments to improve outcomes.
Frequently asked questions.
1. Can the 20 SMA strategy be used with other oscillators (like MACD, stochastic, or CCI)?
Yes, you can use other oscillators (like MACD, stochastic, or CCI) in the 20 SMA strategy instead of RSI. These oscillator combinations provide alternative confirmation signals while maintaining the trend direction functionality of the SMA.
2. How does this strategy perform during economic uncertainty or recession?
During periods of economic uncertainty, you will notice a decrease in the strategy's effectiveness as market volatility disrupts trends. Your strategy may perform poorly amid price fluctuations caused by economic indicators, requiring careful monitoring and adjustment to maintain profitability.
3. What is the recommended minimum account size for this strategy?
You should start with a minimum investment of $1000 for proper risk management. Under an ideal leverage of 1:100, you will maintain sufficient margin while effectively implementing the strategy.
4. Is this strategy suitable for automated trading systems?
Of course, it is suitable, and you will find that this strategy is very well suited for automated trading systems (EAs). Its clear entry, exit, and risk management rules can be effectively converted into trading algorithms for consistent automated analysis.
5. How often should I reassess the effectiveness of my SMA-RSI parameters?
You should backtest monthly and reassess after significant market changes. Reevaluate your SMA-RSI parameters quarterly, adjusting based on performance data to maintain the strategy's effectiveness.
The last three suggestions for you in confusion.
1. Clarify how to use money: If you have time and energy, you can divide your funds into three parts — 50% for long-term investments, 30% for short-term trading, and 20% for high-risk endeavors; if you lose, consider it tuition.
2. Don't keep staring at the coin: if you have coins, you should be aware; if you don't have coins, don't think about it all the time. The highest state is to jump out of this circle, not to be bound by it.
3. Learn to wait: Waiting is not wasting time; it is about figuring out who you are and what you want to do. Opportunities will come; do not rush.
Ultimately, the challenge in making money is not the method, but the execution.
A trading system is a weapon that enables you to achieve stable profits.
It can help you mark key points, discover entry signals, and find trading opportunities that can make you money.
So, to put it another way, as long as you have a stable trading system, just go for the opportunities that arise within it; if you incur losses, it’s no big deal to seek revenge, just do what you should do, and let the market handle the rest; ultimately, profits will always cover the losses.
However, the biggest problem for 99% of people is that they do not have their own trading system, leading them to fear losing money while trading because if they lose, they cannot earn it back. Even if they manage to earn it back by luck, in the end, they will lose everything due to their lack of skill.
