The Morphin Power Ranger and organic Fifth Element strategies

Despite the catchy names of these swing trading strategies, they do not take after the movies with the same titles as you might expect. Let’s look at the Fifth Element Strategy first.

The Fifth Element strategy

The Fifth Element strategy indicates to you when an upcoming entry price will be, allowing you to time an entry into a trade most profitably. You will need the following to try this strategy:

  • Timeframe: H1, H4
  • Trading tools: fast EMA 12, slow EMA 26, MACD SMA 9
  • Currency pairs, such as EUR/USD, USD/JPY, USD/CAD, GBP/USD, USD/CHF, AUD/USD or NZD/USD.

The moving average convergence divergence (MACD) histogram allows you to see the momentum of the market and its direction. If the MACD histogram goes from negative to positive, this means there has been an upward shift in momentum. You must wait for five positive bars on the histogram to make sure the momentum is indeed upward before going long on the fifth bar. Because everything hinges on the fifth bar – which happens to be element 5 in this case ­– the strategy is called the fifth element.

If the MACD histogram changes from positive to negative, you need to open short positions, with the same provisos applying to bar number five as long positions.

How to set up a long trade

  • Wait until the MACD histogram changes from negative to positive.
  • Wait for four positive bars to be confirmed before you enter the market long on the opening of bar number five.
  • Place a stop loss at the histogram’s last low.

You have two profit targets with risk-to-reward ratios of 1:1 and 1:2 accordingly. For example, the risk of your trade is 170 points, and the reward is 350 points if both targets are fulfilled. The risk-to-reward ratio is therefore 1:2, giving you a good 6% return on a 3% risk.

The Power Ranger strategy

This strategy works with an hourly and four-hourly chart. You’ll need the following:

  • The stochastic indicator for this strategy with the following settings:
    • %K period: 10
    • %D period: 3
    • Slowing: 3
    • Price field: high/low
    • MA method: simple
    • Levels 20 and 80

*Remember that the stochastic is an indicator that measures overbought and oversold conditions in the market. (Another technical analysis tool is the Ichimoku Indicator. The more of these you become familiar with as you learn how to trade CFDs, the better you’ll be at it.)

  • Currency pairs such as EUR/USD, USD/JPY, GBP/USD, USD/CHF, USD/CAD, AUD/USD and NZD/USD.

The CFD trading strategy (although it could also be used as a forex or stock trading strategy, depending on the context) is built on the premise that a range should take shape after the market stops trading. Stochastic is an aid designed to help you see this possible range formation. You should also analyze the current market momentum to help inform your decision to go long or short. If the market is militating in an upward direction, you can go long in the range.

You can use stochastic to help you find your entry point. It should not be above level 20, so it should be in the oversold area. If the market is moving down, you should go short. You can find your entry point in the overbought area on the stochastic indicator, higher than level 80.

The Power Ranger strategy has dual profit goals. Take the first one within the range. When it comes to the second one, you’ll find it beyond the range as the anticipation of a breakout builds.