This is a more advanced strategy than the ones we presented until now, with more conditions for a valid entry, but having more rules filters out bad entries, giving us fewer but more reliable signals. Ok, down to business: the MARS strategy uses two MovingAverages, a RSI and Stochastic. For the two Moving Averages, we will use the Exponential method, with periods of 5 and 10. The RSI will remain at the default value of 14 (you will have to manually add the 50 level on it) and for Stochastic we are going to use 15, 3, 3 settings. The chart should look like this after you placed all the indicators on it:
Now for the entry rules: for a Sell trade, we must wait for the 5 EMA (blue one on our chart) to cross the 10 EMA (the red one) from above, and going downwards (bearish cross). The RSI must be under the 50 level and pointing down; the 50 level of the RSI is often used for trend confirmation: once it is crossed, a trend is considered to be in place. However, this is not a trend definition, but it helps in our strategy. Finally, the Stochastic must be pointing down but not in oversold condition. If the Stochastic shows oversold, we shouldn’t enter a trade because a reversal could be coming. Remember that Stochastic is a leading indicator, which informs us about a possible change in the direction of price by going below the 20 level (oversold condition) or above the 80 level (overbought condition). Just like the other strategies, this one also requires us to wait for the close of the candle corresponding to the cross of the two EMAs. For a Buy trade, all the rules must be reversed. A valid Sell signal should look like this:
A good strategy/system should also focus on the exit point, whether is at a profit, or at a loss. The MARS strategy requires us to place the Stop Loss at a logical point, above the previous peak for a Sell trade and below the previous low for a Buy trade, at a safe enough distance, giving the trade some room to breathe. Even if our Stop Loss is not hit, but the RSI crosses the 50 level in the opposite direction, we will also exit the trade. The same is valid for a trade that is in profit: we exit it if the RSI crosses the 50 level in the opposite direction. So the RSI acts in this case as a manual Stop Loss and a manual Take Profit level. Here is an example:
In the picture above we have a short trade example so when the RSI crosses the 50 level in the opposite direction (i.e., going up) we exit the trade in profit. In our example, the RSI crossed up, signaling an exit, but immediately crossed back down making us realize that was a too early exit, but it’s always better to protect your profits and exit early than waiting to see if RSI goes back down. Besides, we can enter again if all the conditions are met when the RSI goes again below the 50 level.
Mars strategy summary:
1. 5 EMA crosses 10 EMA upwards (bullish cross)
2. RSI 14 is above the 50 level
3. Stochastic 15, 3, 3 is pointing up, showing bullish momentum, but it is not in overbought territory
1. 5 EMA crosses 10 EMA downwards (bearish cross)
2. RSI 14 is below the 50 level
3. Stochastic 15, 3, 3 is pointing down, showing bearish momentum, but it is not in oversold territory
Buy: exit if the RSI crosses the 50 level downwards
Sell: exit if the RSI crosses the 50 level upwards
Mars strategy – advantages and disadvantages
The MARS strategy needs a lot of conditions to be met for a trade to be entered and this makes the signals more accurate than the ones provided by other, simpler strategies, but at the same time, it gives us less signals. We consider this to be a good thing, because nobody needs a lot of non-accurate signals. The disadvantage of the strategy is that a novice trader could find it a bit complicated at first, because of all the indicators and rules, but once you get used to it and learn how to use it properly, you will see that it can bring very good profits and that it also can be modified a little, in order to fit a trader’s personality.