Some useful Trading Strategies and Trading setups
30-Minute Breakout(30MBO) Strategy is taken from Jack Bernstein's Book "The Compleat Day Trader II".
Basic Method :-Do not enter any trades for first 30 minutes of trading in the markets for which the 30MBO is being used.
After the first 30 minutes, Buy if the ending price of the 30 minutes is greater than high of the first 30-minute price bar by a predetermined number of ticks.
After the first 30 minutes, Sell short if the ending price of the 30 minutes is less than the high of the first 30-minutes price bar by a predetermined number of ticks.
Your Stop Loss can be either a predetermined signal (i.e., fail-safe or "dead" stop) or the opposite signal (i.e., a Sell signal after an initial buy signal or vice versa).
A training stop loss can be used to follow up an open position, since it has reached a given profit objective .
Close your trade at the end of the day either several minutes minutes before the close of trading.
Trade only in active market.
Trade only in active market.
Examples are given below:
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Following is simple pattern called "HIKKAKE PATTERN"
this is working in high time frame/s like 1 hour and 4 hour and daily and weekly
What Is The Hikkake Pattern
The Hikkake is a failed inside-bar pattern. The inside bar is a candlestick formation that occurs when a certain candle closes inside the range of its predecessor. A breakout of the range is confirming the Inside Bar trade.
The Hikkake trades on a failure of the Inside Bar, entering trade when the range is broken again, to the opposite side.
Psychology Behind The Hikkake
The failure of the Inside Bar triggers stop losses of traders which attempted to trade the Inside Bar, thus adding strength of the movement. The failure itself shows reflectance of traders to continue in the direction of the original breakout, so the Hikkake direction is favored.
How to Trade The Hikkake
1. Spot an Inside Bar candlestick formation - Look for big candles followed by smaller ones that are inside their range.
2. Wait for a breakout of the range.
3. Set Trading Orders - Set orders to join the trade at the breakout of the range to the opposite direction.
4. Stop Loss - Place stop loss above the highest high of last 3 candles (for short), or below the lowest low of last 3 candles (for long). This ensures that stop loss is in a logical place, near Support or Resistance
DETAILS OF THIS ONE GO THROUGH FOLLOWING LINKS
http://shookrun.com/documents/hikkake.pdf
http://www.chartsecret.com/content/t...estick-pattern
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The fakey trading strategy is another bread and butter price action setup. It indicates rejection of an important level within the market. Often times the market will appear to be headed one direction and then reverse, sucking all the amateurs in as the professionals push price back in the opposite direction.
As we can see in the illustration to the right, the fakey pattern essentially consists of an inside bar–> setup followed by a false break of that inside bar and then a close back within its range. The fakey entry is triggered as price moves back up past the high of the inside bar (or the low in the case of a bearish fakey).
"Principles of Professional Speculation" written by Victor Sperandeo (Trader Vic), analyzesone of the powerful top bottom reversal techniques. Trader Vic describes this technique, "In anuptrend, if prices penetrate the previous high, but fail to carry through and immediately dropbelow the previous high, the trend is apt to reverse." The converse is true for a down trend.This pattern is also called "spring." The 2B setup looks like a micro "M" pattern and signalstrend reversal when prices stop making higher-highs in an uptrend.
The 2B pattern rule is when prices make a new high or new low; they pull back for a healthyretracement. After retracement, the price tries to re-test the new high or new low. When thistest of new high or new low fails, and it does not maintain the prices above the new high orlow, it signals a potential trend reversal. This setup is very powerful and signals the beginningof a correction.
Trade : The market attempts to test a recent new high or low, but does not hold the pricesabove this range. Trades are entered to sell the low of the bar trying to breakout or buy thehigh of the bar trying to breakdown.
Target : The target is usually the "swing low" prior to the new high for 2B Buy setup or"swing high" prior to the new low for 2B Sell setup.
Stop: Protect your "long" trade entry by placing a "stop" below the recent low and protect the"short" trade entry by placing a "stop" above the recent high.
STIRRUP PATTERN TRADING
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L. Williams is a trading champion of the world (in 1987 he has won Robbins Cup). Being the author of the book “Long-term secrets of short-term trading”, he has introduced the term “trap of experts (professionals)”. In its essence, it is the false breaking through the previous maximum in the trend. After this, the currency turns towards the opposite direction – at least by a heavy correction. The maximum result is the trend reversal. L. Williams subdivides the “ trap of experts” into two groups – in accordance with the trend direction.
The “selling trap” is a good trend market, continuously moving upwards at the same direction during 5-10 days. Then the upward-directed breakdown occurs. It is accompanied by the bare closing above the total trading range. After this, the true minimum on the day of breakdown becomes the critical point. The latter can be broken downwards (or cleared (overcome, taken)) during the next 1-3 days. In these cases, most probably, the upward-directed breakdown was false. That is, traders have made deals on “buy” to no purpose (vainly). In fact, they purchased on the surge of emotions. Probably, distributors of stocks or goods futures got rid of their items due to this agiotage (stock-jobbing) at the expense of common traders.
Being the exact antithesis to the “selling trap”, the “buying trap” comes into existence in the lower trend. Further this market stabilizes in the lateral movement for 5-10 days. Then the downward-directed breakdown occurs. It is accompanied by the bare closing below all minimums in the trading range on that day. In theory, the reader can suppose that the prices will fall much lower. Actually, this pattern develops most often. On the other hand, a sudden improvement can also occur – i.e., the price can rise higher than the true maximum on the breakdown day. Hence, the market has reversed almost for sure. All “selling” stops below the market have snapped into action. Being afraid of opening long-term deals at the trend reversal, “buyers” have scattered.
Below there are the examples that illustrate these theoretical theses. The last diagram relates to Exxon stocks .
In this connection, L. Williams has advanced an important remark. According to this author, the described mechanism also works within shorter timeframes. He witnessed numbers of profitable deals, where the use was made of the crucial days and “traps” at 5- and 30-minutes and 1-hour timeframes. To “very short-term” traders, L. Williams recommends to use this technique in their intraday activities. Such patterns permit “short-term” traders to detect appropriate points of entering into the market. However, to be firmly confident in one’s dealings, one needs a certain additional proof that they are justified. Otherwise, the price becomes predictable just with the help of the price itself. The best deals can be made with the help of several indicative instruments (gauges) of the technical analysis but not by making use just of the price structure.
Giving analysis to L. Williams’s “trap of experts”
The situation depicted in L. Williams’s charts can be unequivocally characterized as the false breaking through the levels. The pattern develops according to the following scheme :
1). the ascending trend ;
2). the false breaking through the trading range (the ascending trend resistance); a large number of trading traders open their deals along the trend;
3). the market abrupt reversal towards the opposite direction; the specialists sustain damages.
Maybe, this situation is too familiar to all traders. One can find numbers of the analogous examples at Forex.
To avoid the “trap of experts”, one must
1. see the essence of the “trap of experts” and the reasons for its formation;
2. be able beforehand to faultlessly determine where and when such trap can come into existence and snap into action;
3. accurately detect the trend reversal points (at least for the correction) – in case of the trap formation.
L. Williams’s “traps”. The general conclusions developed in Masterforex-V Trading System
1). L. Williams indirectly acknowledges that he cannot in advance notify when “trap of experts” becomes detectable. Besides, he is incapable of predetermining when the “trap of experts” can snap into action – i.e., when it will “swallow” orders postponed (put) by so many traders.
2). L. Williams doesn’t in detail explain his technique of detecting the “trap of experts”. As it is already mentioned above, this author just refers to the fact that, in addition to the price structure, he makes use of “something else”.
3). L. Williams gives a hint that these “know-how” secrets should be added to the trader’s instruments of the intraday trading techniques, which could indicate excellent points of entering the market.
4). L. Williams acknowledges that for this purpose he makes use of small (minor, minute) timeframes (M5-30).
5). L. Williams prompts that the true minimum on the breakdown day makes the critical point. The latter can be broken downwards (or cleared (overcome, taken)) in the next 1-3 days. In this case, most probably, the upward-directed breakdown was false. That is, traders have made deals on “buy” to no purpose (vainly). There L. Williams opens his deals towards the direction, opposite to the previous trend. He regards the breaking through the previous trend technical level as false. This pattern is labeled as the “ trap of experts ”.
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Alton Hill from TradingSim, a day trading simulator, wrote about an enhanced three bar reversal pattern for day trading.
According to Alton Hill, three-bar reversals are too common in intraday time-frames. To select the best three-bar reversal patterns for day trading, he wants the third bar in the pattern to close above the highs of the first two bars.
The diagram below demonstrates the difference between the usual three-bar reversal pattern and Alton Hill’s day trading version.
Low of Bar 2 is below low of Bar 1 (and Bar 3)
Bar 3 closes above the high of both Bar 1 and Bar 2
Buy at close of Bar 3
High of Bar 2 is above high of Bar 1 (and Bar 3)
Bar 3 closes below the low of both Bar 1 and Bar 2
Sell at close of Bar 3
This is a 5-minute chart of E-mini Dow contract. Despite a strong signal bar, the pattern failed immediately after entry.
Although prices were dropping consecutively for seven bars, the increasing buying pressureis obvious as the bars show long bottom tails (shadows).
Tails developed at the top of the bars during the pullback upwards. Tails on both top and bottom of the bars are giving us mixed signals, implying that prices might be congesting soon.
If we ignored the above warning signs and shorted the three-bar reversal pattern, it is difficult to find a worse entry point.
In fact, this added rule is asking for confirmation of the pattern in advance. (Applying the technique of candle blending, if Bar 3 in a normal three bar reversal pattern has good follow-through in Bar 4, blending Bar 3 and Bar 4 would have resulted in this enhanced three bar reversal pattern.)
You can easily combine this pattern with other indicators or price patterns to find high probability trade setups. The winning example is a great combination of a head and shoulders formation and a three bar reversal pattern.
However, due to the extra rule, the signal bar (Bar 3) tends to have a large range. As our stops are usually placed on the opposite end of the signal bar, the trade risk might be higher. We should either cut down our trade size or tighten the stop if possible. If you are unable to manage the risk, then skip the trade setup.
One last point to note is that if the middle bar of the pattern is an outside bar, be very careful. Outside bars often precede wild and unpredictable price action.
If you want to read more about three-bar patterns, you must take a look at our review of Johnan Prathap’s Three Bar Inside Bar Pattern and Thomas Bulkowski’s “Are Three Bar Patterns Reliable for Stocks?” article in Technical Analysis of Stocks & Commodities magazine.
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Chart formations in Technical analysis require a group of bars to derive a pattern. Sometimes a single bar or two bars can show great patterns, but as a group, 3-bar series groups provide reliable patterns or confirmations for other major developing patterns. These groups of bars are called "key reversal" bars. This 3-bar group may also consist of well known two-bar
reversals or a single bar patterns within inside this group. Most of these 3-bar groups are partof a "fractal" formations or part of "market structures" where a prevailing trend showing signs of pausing or reversal of current trends. Bars with exhaustion price-action, "narrow range (with inside-days)" or "spike with ledges" are some of the 3-bar group pattern examples. 3-bar
group pattern formations near key support and resistance levels or near key moving averages I (50 EMA, 200 SMA) offer great potential trade setups.
Within the 3-Bar Groups, intra-bar relations like close and open values relative to other bar , close and open values and how they are formed could give signals of continuation or reversal of trends. Gaps within the 3-bar patterns also have significance.
Three Bar Pattern groups as the name suggests, will have three continuous bars. It can be in any time-frame or in any market instrument. A 3-bar group pattern is defined using the three bar's inter-bar Open, High, Low, Close relationships with each other. In my view, Three Bar patterns are relatively short trade setups and should be traded using other indicators. They are
more effective as reversals near the end of prolonged trends than in the middle of the trends. When markets making new highs and showing a series of signs of pausing or reversals, 3-bar patterns are more reliable than 3-bars formed in the middle of the trend. Two out of three 3- Bar Groups may be successful but the concept also applies to bigger structures with three
continuous major "swing highs" and three continuous major "swing lows". When trading three-bar groups, look for the third bars' range. When the range of the third bar is greater than prior two bars, it tends to produce more reliable results.
One of the 3-Bar Groups (Market Structures) is discussed in detail in this book and here I
present few of my favorite patterns that 1 trade.
Trading 3-Bar Groups
All the 3-Bar group patterns listed below have trade-setups. Most of these patterns are shortterm
based and targets are usually at a major "swing high or major "swing low" based on the
pattern setup. Stop orders should be placed to protect the trade within the 3-bar groups. Three
bar group patterns fail when significant support or resistance is traded against the trade setup.
When trading an upside 3-bar group, place a stop order below the lowest low of the three bars.
When trading a downside 3-bar group, place a stop order above the highest high of the three bars.
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Technical indicators are constructed by manipulating some aspect of price such as a moving average of prices over a 10 day period. The Relative Strength Indicator (RSI) tries to anticipate a change in the trend. This is a leading indicator of a trend change. The results are used to deliver messages about the strength of the market. It is called an oscillator because the indicator readings are converted into percentage results which range from 0% to 100%. The position of each day’s indicator reading gives the trader an indication of the strength, or weakness, of the existing price trend.
The RSI is calculated by monitoring changes in the closing prices of the stock. The number of higher closes is compared to the number of lower closes for the selected period. The RSI compares the internal strength of a stock by looking at the average of the upwards price changes and comparing it with the average of the downward price changes. The results are expressed as a percentage, providing the upper and lower boundaries. The plotted results oscillate between these two levels and give traders information about the speed and acceleration of the changes. Traders use either a 14, 9, or 7 day period in the Relative Strength Calculation.
In this sense the RSI is very similar to a stochastic and uses similar principles. Where the stochastic quantifies the ability of the market to close near the high or the low of the day, the RSI quantifies the strength of the way the market moves higher, or lower. The over-bought and over-sold signals are the same as any oscillator, although with an RSI they are traditionally set at 70% and 30%.
The most significant trading signal delivered by any oscillator style indicator is a divergence signal. This sounds complicated but it just means that the significant valley patterns shown by the RSI trend in the opposite direction to the significant valley patterns as shown by the price line chart. A valley is created by two distinct lows that each precede a rally from a downtrend. This builds a valley in the price chart. The lows of these valleys are joined with a short trend line as shown.
The corresponding lows on the RSI indicator are also joined by a short trend line. When the RSI line slopes differently from the price chart line, a divergence occurs. When these valleys form below the 30% area on the RSI, or form peaks above the 70% level, they are most reliable. Oscillator activity between these levels is not used to find divergence signals. Divergence signals give the trader an advantage by confirming an entry into a downtrend as it weakens and just before it turns into an up trend. It is also used to get out of an up trend as it weakens, and before it collapses into a downtrend. The divergence signal does not occur every time a trend changes, but when it does, it delivers a strong confirmation signal that a trend break is likely.
RSI divergence signals often appear in advance of a trend change, but they are not very good at suggesting the time of a trend change. The divergence signal may appear just as the trend changes, as in the chart extract, or several weeks before. Traders use the RSI divergence as an early warning signal to enable them to prepare for a trend change.
When the RSI and price chart lines move in the same way we get a confirming signal that the existing price trend is unlikely to change. These signals are not very important because we can get the same information from just looking at the chart.
The RSI is one of the very few oscillator style indicators where trend lines and support and resistance lines can be effectively used. These are used as signals to confirm the trend shown on the price chart. When other chart patterns suggest action, then the RSI trend line might also confirm this. When the RSI is used like this it does not give the trader any distinct advantage.
RSI = 100 - 100/(1 + RS*)
*Where RS = relative strength = (Average of Gains over recent trading period)/ (Average of Losses over same trading period) Gain/Loss = Difference of current close over previous close.
The default time frame to measure RSI is 14 periods. However the same can be lowered or raised to increase or decrease sensitivity. RSI varies between 0 to 100 and the stock is considered overbought when RSI is above 70 or oversold when RSI is below 30. RSI is used to identify oversold and overbought stocks, direction of the trend and thereby trend reversals. Different researchers have come out with various ways to interpret RSI.
Some of the popular ones are as below:
When RSI crosses 30 from bottom, it indicates bullish confirmation signal and when it crosses 70 from top, it indicates bearish confirmation signal.
RSI tends to vary between 40 to 80 in bullish market and 40-50 zones act as support and pullback into RSI (40-50 zone) is buy signal.
RSI tends to vary between 20 to 60 in bearish market and 50-60 zones act as resistance and entry into RSI (40-50 zone) is sell signal.
Positive Reversal - When stock makes higher low and RSI makes lower low (not necessarily in oversold zone but could be in 30-50 zone), it signals despite weaker momentum, stock did not make a lower low and therefore shows underlying strength and signals buy.
Negative Reversal - When stock makes lower high and RSI makes higher high (not necessarily in overbought zone but could be in 50-70 zone), it signals despite stronger momentum, stock did not make a higher high and therefore shows underlying weakness and signals sell.
Bullish Divergence - When stock makes lower high and RSI makes higher low (with RSI in oversold zone), thus RSI fails to confirm price movement signalling reversal and thereby it signals buy.
Bearish Divergence - When stock makes higher low and RSI makes lower high (with RSI in overbought zone), thus RSI fails to confirm price movement signalling reversal and thereby it signals sell.
Bullish Failure Swing - When RSI moves below 30, then bounces back above 30 and then pulls back but holds above 30 and then breaks its prior high, it signals buy.
Bearish Failure Swing - When RSI moves above 70, then pulls back below 70 and then bounces back but fails to move above 70 and then breaks its prior low, it signals sell.
Note: Divergences are found to only lead to brief reversals and therefore to be used with caution. RSI can give wrong signals in very strong trends. So, RSI is best used along with other indicators.
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FAILED BREAKOUT(BOF): If its not a Breakout then it will be a Failed breakout... Price will not sustain above the level.. then we will wait for down close below that level. And that will be our signal candle.. and we will put our entry below the low of signal candle... For how much below you can use ATR indicator value.
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A master candle forms when a large candle makes a recent high and low that engulfs the following four or more candles. Take a look at the example below:
The minimum number of candles the master candle needs to engulf is four, but the more the better. When a master candle forms it is an area of support and resistance being set.
Why Are They Useful and What Do They Mean?
I find it is easiest to think of master candles as mini scalp lines. The high and low of the master candle represent recent areas of support and resistance. As candles form within the boundaries of the master candle the areas of support and resistance grow stronger. So trading master candles is like trading scalp lines or range breaks. The market falls into a range that is dictated by the high and low of the master candle. Once that high or low is broken the market
should rally. The more time before the break the stronger those boundaries become. Think about a master candle as a cross between support + resistance lines and candle patterns.
How Accurate are They?
Like any form of technical analysis, if you trade it alone and you blindly jump in without thinking you will lose. These patterns only work if the trader using them has a brain and is willing to use some discretion. A trading method only works if a real trader is trading it. So master candles can be as accurate as giving you 8 wins in every 10 trades using them. However, this will only be true if you use them in conjunction with other forms of analysis, common sense, and your brain.
What Makes a Strong Master Candle?
As with any form of analysis, some signals can be stronger than others. For example, when trading scalp lines a scalp line that has had three very strong, recent bounces is stronger than a scalp line with one weak bounce.
Let’s look at some of the things that make a master candle stronger:
1. Line Bounces
We know that the more bounces a scalp or support + resistance line has the stronger the line becomes. This is simply because every time the price
bounces away from that level it shows us that the level is a strong barrier. The more it bounces the stronger that barrier becomes. So when the price manages to eventually break that barrier it makes for a much better trade.
If the candles within the master candle bounce off of the high or low of the master candle it makes that high or low stronger. Therefore, a break of that high or low should make for a better trade, as the price should have a stronger than normal rally. Take a look at this example below:
Looking at the picture above you can see what I mean. The candles trapped within the boundaries of the master candle keep on testing the resistance lines. The more times the price rejects that line the stronger the line becomes.
2. Scalp or Support + Resistance Lines
If the master candles high or low happens to form on a pre existing scalp or support resistance line then that line becomes stronger. It becomes stronger because more than one form of analysis points to the same line being an area of support or resistance.
3. Psychological Levels
Same as above, if the master candles high or low happens to form on a strong psychological level Iwould consider the line stronger.
4. Time
The longer the master candle holds out the stronger it becomes. However, if it holds for too long I might consider it invalid. I give it about 24 hours to break. If it cannot break in 24 hours I scrap the master candle.
5. New highs or lows
If the high or low of a master candle doubles as a new daily, weekly, monthly, yearly or all time high or low it obviously makes the master candle stronger. Here is an example:
As you can see the master candle that formed on the 5th of December formed a new yearly low. I
would consider that line stronger than the line up top. This is just common sense.
So depending on how and where they form some master candles can be stronger than others.
This is so straight forward I do not know if it can be explained any more. The master candle forms a high and a low. When that high or low is broken the entry is triggered. However, as usual this breakout trading is a little different than most types of breakout trading. I like to use my brain when entering a breakout trade. I do not robotically enter the moment the line is broken. There are several factors that dictate whether or not I get into a trade, and if I get into the trade, when I get in.
Targets and Stops
Master candles are very subjective. Targets depend on where/when they form, market conditions, and line strength. Obviously if the master candles low forms on top of a strong support + resistance line the target on the break will be larger.
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Name of System: Trend Catching System (I do not know its name)
Timeframe: H1 and over
Pair: Any trending pair, GBPJPY preferred
This is very simple trading system that anyone can easily master after a little practice on a demo account for some time. The system has a high accuracy rate and TP can be hit most of the time. This system aims at catching the pips when a trend is in the play. The indicators will help you spot these cool periods. Here is a screenshot of the system.
How to setup your charts
1. Download the BBANDS indicator from the bottom of this post and place it in your experts/indicator folder
2. Download the template and place in in the metatrader/templates folder
3. Apply the template on your chart.
Since the system uses a lot of moving averages, placing them manually can detailing them here can be confusing, so using the template provided here is the best solution. You can always study the setup from your charts directly and investigate into the moving averages and their individidual values. The setup is using 10 moving averages in all.
When to BUY
1. When the BBANDS indicator turns BLUE
2. When the Blue moving averages cross and go upwards. The two thick blue moving averages need to be some distance from each other and not stuck together. This indicator that there is momentum in the UP move.
3. When the Blue Moving averages are above the WHITE CHANNEL
4. When the MACD histogram is ABOVE the ZERO line and also ABOVE the RED line.
These are the steps that you need to follow closely to identify a BUY setup. If you stick to these rules, you will end up with green pips most of the times. The major problem occurs when you try to burn one of the rules.
The Takeprofit and Stoploss is at your own discretion. These values depends on the charts on which you are working on. For example on the H1 chart, you should aim at a lower TP( e.g 60pips) and on the H4, you can aim at a higher TP(e.g 100pips+)
Refer to the screenshot above for the buy trading rules.
When to SELL
You open a SELL position exactly when the opposite of the Buy setup occurs which are as follows:
1. When the BBANDS indicator turns RED
2. When the Blue moving averages cross and go downwards. The two thick blue moving averages need to be some distance from each other and not stuck together. This indicator that there is momentum in the DOWN move.
3. When the Blue Moving averages are below the WHITE CHANNEL
4. When the MACD histogram is BELOW the ZERO line and also BELOW the RED line.
Refer to the screenshot above in order to get a clear idea on the SELL signal generated by this system. The same rules for the Takeprofit and Stoploss levels apply to the sell as well.
When not to trade
1. You should not be taking any trades when all these rules have not been met.
2. You should not be trading when the Blue moving averages are stuck to one another, this shows that the market is ranging and this system will not make money in ranging markets.
When to CLOSE your trade
Your trades should be closed automatically if you have takeprofit and stoploss in place. However, if you are available to monitor your trades, you can wait for an opposite signal to occur then you close your trade to open the opposite one. This make you catch more pips than in a fixed takeprofit setup. Trailing Stop can also be good, however it should not be too tight as you will be out of the good trades too soon.
Final Words
This system is a neat little system with clear straightforward rules. If you follow them closely, I do not see any reason why you will not end up with a climbing equity curve. However, you will need a few weeks of practice in order to understand how the system acts and reacts to the market changes and get acquainted to it. I hope that you will have a good and enjoyable experience with this trading system. Wishing you lots of luck in your trading. Also, would like to hear from you and benefit from your experience.
Buy alert: If today's low and yesterday's low is greater than the 20-day EMA. This signal remains valid until the low touches or falls below the 20-day EMA.
Buy entry: Place a stop order 10 ticks above the two-day high. This will help ensure buying with the new trend and help to avoid false signals. Keep order until filled or as long as the buy alert is still valid.
Long exit: Place a stop equal to the 20-day EMA. Continue to update this stop daily to form a trailing stop.
Sell alert: If today's high and yesterday's high is less than the 20-day EMA. This signal remains valid until the high touches or rises above the 20-day EMA.
Sell entry: Place a stop order 10 ticks below the two-day low. This will help ensure that you will sell with the new trend and help to avoid false signals. Keep order until filled or as long as the sell alert is still valid.
Short exit: Place a stop equal to the 20-day EMA. Continue to update this stop daily to form a trailing stop.
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http://www.mediafire.com/download/0zjy1y1n2g4cn27/FunFilledGaps20111129.pdf
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UPTREND: when price is making a series of higher high and higher lows,it is called to be in up trend
DOWN TREND: when price is making a series of lower high and lower lows, it is in down trend
CHANGE OF TREND :In a down trend(series of lower low and lower highs),if price breaches the lower high,just before the lowest low,and then sustains above,it is a change of trend
same way in a up trend (series of higher high and higher lows),
if price breaches the higher low,just before the highest high,and sustains lower,it is a change of trend
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Three Day System
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http://www.magicbreakout.com/downloadbook.php?file=MagicBreakout.pdf
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HIKKAKE PATTERN
Following is simple pattern called "HIKKAKE PATTERN"
this is working in high time frame/s like 1 hour and 4 hour and daily and weekly
What Is The Hikkake Pattern
The Hikkake is a failed inside-bar pattern. The inside bar is a candlestick formation that occurs when a certain candle closes inside the range of its predecessor. A breakout of the range is confirming the Inside Bar trade.
The Hikkake trades on a failure of the Inside Bar, entering trade when the range is broken again, to the opposite side.
Psychology Behind The Hikkake
The failure of the Inside Bar triggers stop losses of traders which attempted to trade the Inside Bar, thus adding strength of the movement. The failure itself shows reflectance of traders to continue in the direction of the original breakout, so the Hikkake direction is favored.
How to Trade The Hikkake
1. Spot an Inside Bar candlestick formation - Look for big candles followed by smaller ones that are inside their range.
2. Wait for a breakout of the range.
3. Set Trading Orders - Set orders to join the trade at the breakout of the range to the opposite direction.
4. Stop Loss - Place stop loss above the highest high of last 3 candles (for short), or below the lowest low of last 3 candles (for long). This ensures that stop loss is in a logical place, near Support or Resistance
DETAILS OF THIS ONE GO THROUGH FOLLOWING LINKS
http://shookrun.com/documents/hikkake.pdf
http://www.chartsecret.com/content/t...estick-pattern
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Swing TOP and BOTTOMS
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Fakey Setup:
The fakey trading strategy is another bread and butter price action setup. It indicates rejection of an important level within the market. Often times the market will appear to be headed one direction and then reverse, sucking all the amateurs in as the professionals push price back in the opposite direction.
As we can see in the illustration to the right, the fakey pattern essentially consists of an inside bar–> setup followed by a false break of that inside bar and then a close back within its range. The fakey entry is triggered as price moves back up past the high of the inside bar (or the low in the case of a bearish fakey).
THIS PATTERN WILL VERY GOOD TRADE SET UP TO TRADE
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Trader Vic's 2B Patterns
"Principles of Professional Speculation" written by Victor Sperandeo (Trader Vic), analyzesone of the powerful top bottom reversal techniques. Trader Vic describes this technique, "In anuptrend, if prices penetrate the previous high, but fail to carry through and immediately dropbelow the previous high, the trend is apt to reverse." The converse is true for a down trend.This pattern is also called "spring." The 2B setup looks like a micro "M" pattern and signalstrend reversal when prices stop making higher-highs in an uptrend.
The 2B pattern rule is when prices make a new high or new low; they pull back for a healthyretracement. After retracement, the price tries to re-test the new high or new low. When thistest of new high or new low fails, and it does not maintain the prices above the new high orlow, it signals a potential trend reversal. This setup is very powerful and signals the beginningof a correction.
Trade : The market attempts to test a recent new high or low, but does not hold the pricesabove this range. Trades are entered to sell the low of the bar trying to breakout or buy thehigh of the bar trying to breakdown.
Target : The target is usually the "swing low" prior to the new high for 2B Buy setup or"swing high" prior to the new low for 2B Sell setup.
Stop: Protect your "long" trade entry by placing a "stop" below the recent low and protect the"short" trade entry by placing a "stop" above the recent high.
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STIRRUP PATTERN TRADING
By Daryl Guppy
We first observed and analysed this trading pattern in late 2003 and 2004. In recent
weeks it has reappeared and it develops in the same way. There is one important difference in
the 2012 iteration. The long term measurement of the stirrup pattern is no longer quite as
reliable. In 2003/2004 it was around 65% reliable. Now we find the pattern does not go on to
fully develop so traders need to manage the breakout with an ATR or CBL volatility based stop
loss. However the stirrup pattern remains a reliable indicator of a substantial and sustained
breakout.
One of the challenges in fast moving momentum stocks is to decide how to handle the
inevitable pullbacks. Traders who hold open positions in the stock use these pullbacks, or price
retreats to take profits. Typically they apply some variation of a trailing stop loss technique to
achieve this. Many other traders watch these rising stocks with dismay, regretting they had not
purchased them earlier. When prices do start to collapse, these traders are alert for an
opportunity to buy the retreat in anticipation of a rebound.
Rebound trade opportunities include finger trades where prices drop rapidly, then
recover quickly and reach a high equal to the previous high. These are very short term
opportunities. Some traders use a Fibonacci approach, buying retracements at particular
percentage values. Their objective is to ride a resumption of the trend, but they have no firm
idea of how far the new trend might go.
We are interested in a pattern which achieves several things in these trading
opportunities. They are:
Confirm a high probability of a rebound
Permit the calculation of a high probability target
Set identification and management conditions that are independent of technical
analysis indicators
We use the stirrup chart pattern for this. This is a three part pattern, and unless all the
pieces come together, the probability of success is lowered. Not all retreat and rebounds
conform to this pattern, but when they do, we can trade with an increased level of confidence.
We call them a stirrup pattern because like a stirrup on a saddle, they hang in mid air and help
boost the rider into a higher seat.
This is the broad environment where we look for a stirrup pattern rebound. It starts when
a stock has been moving steadily upwards, or has perhaps developed a recent burst of good
price activity. This is followed by a retreat, or pullback in prices. The retreat is strong enough to
trigger an exit for traders who already hold the stock. There is no doubt that a new downtrend has developed. The retreat is often much greater than 50% of the previous major price move, so
Fibonacci approaches are not always a useful guide to rebound points. This is not a
consolidation pattern where prices move sideways.
What attracts our attention is the possibility that prices may rebound from the downtrend
and re-establish a new uptrend. The recent up move in prices has the potential to be the start of
a new uptrend and if we enter early we can benefit greatly. Traders look for pattern
developments that increase the probability the rebound is genuine.
The stirrup pattern starts with an upward sloping triangle that develops at the bottom of
the price retreat. It is not uncommon to see the top of the triangle set at a well defined support
and resistance level. In some cases, the top of this triangle is an extension of the bottom of a
failed down sloping triangle. The key feature is a clear resistance level established over 3 to 10
days. The sloping edge of the triangle starts forms the lowest point in the pattern.
The base of this up sloping triangle – the stirrup – does not have to show continuous
price action in a single direction. This is a requirement when we use triangle targets. We are not
using the stirrup for this, so we are more interested in the broad bullish message delivered by
this type of triangle development. The upward sloping trend line starts from the lowest low in the
price following the original high.
Once the stirrup pattern is confirmed we project two lines. The bottom line is placed on
the lowest point of the price retreat, and the point which forms the start of the upwards sloping
triangle. For clarity in the diagram we have projected this as a blue line to the left.
The second line is projected from the top of the previous price rise. Again, for clarity, we
show this to the left as a blue line. These two lines define the upper and lower limits of recent
price activity. They match the retreat and rebound extremes and the red arrow measures this
distance in cents. This measurement provides the mechanism for setting the stirrup pattern
price target.
This is where the stirrup pattern is different from an upwards sloping triangle pattern. In
this case the triangle is used as a confirmation that a broader pattern is in place. It acts as a
trigger, telling the trader that a stirrup pattern trade is available.
Once the stirrup pattern is confirmed, the target measurement is projected upwards from
the top of the previous high. This makes this style of trade different from a rebound, or finger
trade where the target matches the previous high. The stirrup trade sets a much higher target
which is generally achieved in a steady continuation of the trend. Where the retreat has been
characterized by a very strong bearish chart pattern, the upside target is reduced by 1 or 2 ticks
as there is an increased probability of prices not quite reaching the target, or completing only a
few trades at this level.
It is not useful to use the classic measurement of the base of the upwards sloping
triangle as a target trade in this situation. As shown by the purples lines, this usually sets very
low targets. The upwards sloping triangle is important in this chart pattern as an initiating trigger
for a much larger pattern trade.
Aggressive traders may act in anticipation of the upwards sloping triangle being
completed, but we prefer to wait until there is a close above this level. Returns from this style of
trading range between 20% and 35% with around 65% reliability.
Once the target has been achieved there is no guarantee of a continuation of the trend.
In some cases prices collapse quickly from these target levels, and this retreat may offer
another stirrup trade set up.
The stirrup trade with Singapore listed Nera Telecom illustrates this type of trade. It
starts with the price retreat from $0.385 to $0.335. The uptrend has halted, but we do not know if this retreat is temporary, or part of a longer term downtrend. Prices begin to rebound from
$0.335. The upward sloping triangle – the stirrup in this context – is quickly confirmed by the
way prices hit the resistance level at $0.355. There is no rush in identifying this pattern as there
are no sound advantages in entering the pattern early. We can try to anticipate the development
of the pattern, and use the base of the trend line as a stop loss point. However, if prices
collapse below this up trend line at the bottom of the triangle they can fall very rapidly. It is safer
to wait until the high probability trade pattern is confirmed.
After six days of persistent rises to the resistance level, Nera Telecom finally breaks
above. This is also in the last third of the triangle pattern. This confirms the stirrup, and we plot
the measurement lines from the low at $0.335 and the high at $0.385. These are then projected
upwards to set a target at $0.435. A trade entry at $0.335 is available on each of the following
two days.
Nera Telecom is a very fast moving stirrup rebound. It takes six days to reach the stirrup
target price. This fast moving trend lifts prices above the target level, but it also collapses
quickly. Traders have six days where it is possible to exit at their target price. This trade returns
around 24%.
The stirrup pattern is based on a relatively small and unimportant upwards sloping
triangle. What makes it significant is where it occurs in the context of a retreat and rebound
environment. The stirrup pattern gives the trader a leg-up into a higher probability trend
continuation. This is a useful pattern that provides reliable signals in a situation where many
other techniques are less useful. The stirrup pattern signals a resumption of the pre-existing
trend. It is a continuation pattern, but it has the advantage of setting target highs. This makes it
useful in establishing the risk and reward relationship in the proposed trade. The trade has
around 65% reliability, with typical returns between 20% and 30%.
Once the target has been achieved there is no guarantee of a continuation of the trend.
In some cases prices collapse quickly from these target levels, and this retreat may offer
another stirrup trade set up.
SUBJECT SUMMARY
STIRRUP PATTERN
The stirrup pattern boosts the trader into a higher probability trend continuation after a major price retreat. We call them a stirrup pattern because like a stirrup on a saddle, they hang in mid air and help boost the rider into a higher seat. The pattern starts with a small upwards sloping triangle that forms at the bottom of a price retreat after a major uptrend. This triangle triggers a broader pattern development.
The stirrup pattern measures the distance between the previous trend high and the retreat low.
This distance is then projected above the top of the trend high and sets a new target for the rebound breakout. The stirrup pattern signals a resumption of the pre-existing trend. It is a continuation pattern, but it has the advantage of setting target highs. This makes it useful in establishing the risk and reward relationship in the proposed trade. The trade has around 65% reliability, with typical returns between 20% and 30%.
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Micro Double Top and Bottom
Smaller time frame charts may form micro double top and double bottom patterns. When these form at areas of entry, trades may be taken using a stop market order at the break of the middle swing.
Figure 1
Figure 1 of gold futures shows a micro double bottom with Point 1 and 2 being the bottoms. A long entry can be taken when price breaks above the swing high between Point 1 and 2, as shown by the red line.
Figure 2
Figure 2 shows a micro double top in AUD/USD with Point 1 and 2 being the tops. A short entry can be taken when price breaks below the swing low between the two legs. The entry is shown by the red line.
Triple Top and Bottom
A variation involving three micro tops or bottomsmay be found at times. The entry for a micro triple bottom is above the swing highs between the legs. The entry for a micro triple top is below the swing lows between the legs.
Figure 3
Figure 3 of JP Morgan Chase shows a micro triple bottom with bottoms at Points 1, 2, and 3. A long stop market entry can be taken when price breaks above the swing highs between the legs. This entry is shown by the red line.
Stop Placement
Stops should generally be placed a place where the trade is definitely not working. Since a triple bottom or wedge may develop from a double bottom, stops could be placed at twice the height of the double bottom or top. Tight stops are meant to be tagged.
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Three Buddha Top Chart Example
a candlestick chart with a head and shoulder pattern
The chart above of the S&P 500 ETF (SPY) illustrates a three Buddha top. The main idea is that prices on the third buddha failed to make an equal or higher high than the middle Buddha. In fact bulls were unable to come close to the first or second Buddha high. Once prices fell below the lows between the first and second Buddha and the second and third Buddha (the lowest blue line on the chart), bulls were completely rejected and prices began to fall downward.
Inverted Three Buddha Bottom Example
candlesticks chart with a reverse head and shoulders pattern
The chart above of Hewlett Packard (HPQ) illustrates an inverted three Buddha bottom. The first low was created by a bullish counterattack line, the middle low was created by a hammer, and the third and final inverted Buddha was created by a bullish engulfing pattern. Once prices exceeded the peaks in between the first and second inverted Buddha and the second and third inverted Buddha, the inverted three Buddha bottom was confirmed.
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Chapter 1. Unsolved "trap of experts" by Larry Williams
L. Williams is a trading champion of the world (in 1987 he has won Robbins Cup). Being the author of the book “Long-term secrets of short-term trading”, he has introduced the term “trap of experts (professionals)”. In its essence, it is the false breaking through the previous maximum in the trend. After this, the currency turns towards the opposite direction – at least by a heavy correction. The maximum result is the trend reversal. L. Williams subdivides the “ trap of experts” into two groups – in accordance with the trend direction.
The “selling trap” is a good trend market, continuously moving upwards at the same direction during 5-10 days. Then the upward-directed breakdown occurs. It is accompanied by the bare closing above the total trading range. After this, the true minimum on the day of breakdown becomes the critical point. The latter can be broken downwards (or cleared (overcome, taken)) during the next 1-3 days. In these cases, most probably, the upward-directed breakdown was false. That is, traders have made deals on “buy” to no purpose (vainly). In fact, they purchased on the surge of emotions. Probably, distributors of stocks or goods futures got rid of their items due to this agiotage (stock-jobbing) at the expense of common traders.
Being the exact antithesis to the “selling trap”, the “buying trap” comes into existence in the lower trend. Further this market stabilizes in the lateral movement for 5-10 days. Then the downward-directed breakdown occurs. It is accompanied by the bare closing below all minimums in the trading range on that day. In theory, the reader can suppose that the prices will fall much lower. Actually, this pattern develops most often. On the other hand, a sudden improvement can also occur – i.e., the price can rise higher than the true maximum on the breakdown day. Hence, the market has reversed almost for sure. All “selling” stops below the market have snapped into action. Being afraid of opening long-term deals at the trend reversal, “buyers” have scattered.
Below there are the examples that illustrate these theoretical theses. The last diagram relates to Exxon stocks .
In this connection, L. Williams has advanced an important remark. According to this author, the described mechanism also works within shorter timeframes. He witnessed numbers of profitable deals, where the use was made of the crucial days and “traps” at 5- and 30-minutes and 1-hour timeframes. To “very short-term” traders, L. Williams recommends to use this technique in their intraday activities. Such patterns permit “short-term” traders to detect appropriate points of entering into the market. However, to be firmly confident in one’s dealings, one needs a certain additional proof that they are justified. Otherwise, the price becomes predictable just with the help of the price itself. The best deals can be made with the help of several indicative instruments (gauges) of the technical analysis but not by making use just of the price structure.
Giving analysis to L. Williams’s “trap of experts”
The situation depicted in L. Williams’s charts can be unequivocally characterized as the false breaking through the levels. The pattern develops according to the following scheme :
1). the ascending trend ;
2). the false breaking through the trading range (the ascending trend resistance); a large number of trading traders open their deals along the trend;
3). the market abrupt reversal towards the opposite direction; the specialists sustain damages.
Maybe, this situation is too familiar to all traders. One can find numbers of the analogous examples at Forex.
To avoid the “trap of experts”, one must
1. see the essence of the “trap of experts” and the reasons for its formation;
2. be able beforehand to faultlessly determine where and when such trap can come into existence and snap into action;
3. accurately detect the trend reversal points (at least for the correction) – in case of the trap formation.
L. Williams’s “traps”. The general conclusions developed in Masterforex-V Trading System
1). L. Williams indirectly acknowledges that he cannot in advance notify when “trap of experts” becomes detectable. Besides, he is incapable of predetermining when the “trap of experts” can snap into action – i.e., when it will “swallow” orders postponed (put) by so many traders.
2). L. Williams doesn’t in detail explain his technique of detecting the “trap of experts”. As it is already mentioned above, this author just refers to the fact that, in addition to the price structure, he makes use of “something else”.
3). L. Williams gives a hint that these “know-how” secrets should be added to the trader’s instruments of the intraday trading techniques, which could indicate excellent points of entering the market.
4). L. Williams acknowledges that for this purpose he makes use of small (minor, minute) timeframes (M5-30).
5). L. Williams prompts that the true minimum on the breakdown day makes the critical point. The latter can be broken downwards (or cleared (overcome, taken)) in the next 1-3 days. In this case, most probably, the upward-directed breakdown was false. That is, traders have made deals on “buy” to no purpose (vainly). There L. Williams opens his deals towards the direction, opposite to the previous trend. He regards the breaking through the previous trend technical level as false. This pattern is labeled as the “ trap of experts ”.
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BUSTED PATTERNS
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TRADE WITH TREND LINES
How to draw trend lineLONG Swing Entry Trade Setup
SHORT Swing Entry Trade Setup
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THREE-BAR REVERSAL PATTERN
Alton Hill from TradingSim, a day trading simulator, wrote about an enhanced three bar reversal pattern for day trading.
According to Alton Hill, three-bar reversals are too common in intraday time-frames. To select the best three-bar reversal patterns for day trading, he wants the third bar in the pattern to close above the highs of the first two bars.
The diagram below demonstrates the difference between the usual three-bar reversal pattern and Alton Hill’s day trading version.
RULES FOR LONG
Bar 1 closes downLow of Bar 2 is below low of Bar 1 (and Bar 3)
Bar 3 closes above the high of both Bar 1 and Bar 2
Buy at close of Bar 3
RULES FOR SHORT
Bar 1 closes upHigh of Bar 2 is above high of Bar 1 (and Bar 3)
Bar 3 closes below the low of both Bar 1 and Bar 2
Sell at close of Bar 3
WINNING TRADE
This a 5-minute chart of ES futures. It shows the regular session. I included part of the previous section to show the up trend that ended yesterday. After our entry, the prices drifted up for the rest of the session.
The previous session ended with a strong bull trend.
The three-bar reversal pattern was also the right shoulder of a bullish head and shoulders formation. (You might have noticed that the head of the formation was a regular three-bar reversal pattern. In this case, it gave a better entry than our enhanced pattern.)
The last bar of the pattern closed above the highs of the two previous bars. That was our signal to buy.
LOSING TRADE
Although prices were dropping consecutively for seven bars, the increasing buying pressureis obvious as the bars show long bottom tails (shadows).
Tails developed at the top of the bars during the pullback upwards. Tails on both top and bottom of the bars are giving us mixed signals, implying that prices might be congesting soon.
If we ignored the above warning signs and shorted the three-bar reversal pattern, it is difficult to find a worse entry point.
REVIEW – THREE-BAR REVERSAL PATTERN FOR DAY TRADING
This modified three-bar reversal pattern is impressive. A simple rule has turned this commonplace pattern into a powerful setup.In fact, this added rule is asking for confirmation of the pattern in advance. (Applying the technique of candle blending, if Bar 3 in a normal three bar reversal pattern has good follow-through in Bar 4, blending Bar 3 and Bar 4 would have resulted in this enhanced three bar reversal pattern.)
You can easily combine this pattern with other indicators or price patterns to find high probability trade setups. The winning example is a great combination of a head and shoulders formation and a three bar reversal pattern.
However, due to the extra rule, the signal bar (Bar 3) tends to have a large range. As our stops are usually placed on the opposite end of the signal bar, the trade risk might be higher. We should either cut down our trade size or tighten the stop if possible. If you are unable to manage the risk, then skip the trade setup.
One last point to note is that if the middle bar of the pattern is an outside bar, be very careful. Outside bars often precede wild and unpredictable price action.
If you want to read more about three-bar patterns, you must take a look at our review of Johnan Prathap’s Three Bar Inside Bar Pattern and Thomas Bulkowski’s “Are Three Bar Patterns Reliable for Stocks?” article in Technical Analysis of Stocks & Commodities magazine.
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Three Bar Groups
Chart formations in Technical analysis require a group of bars to derive a pattern. Sometimes a single bar or two bars can show great patterns, but as a group, 3-bar series groups provide reliable patterns or confirmations for other major developing patterns. These groups of bars are called "key reversal" bars. This 3-bar group may also consist of well known two-bar
reversals or a single bar patterns within inside this group. Most of these 3-bar groups are partof a "fractal" formations or part of "market structures" where a prevailing trend showing signs of pausing or reversal of current trends. Bars with exhaustion price-action, "narrow range (with inside-days)" or "spike with ledges" are some of the 3-bar group pattern examples. 3-bar
group pattern formations near key support and resistance levels or near key moving averages I (50 EMA, 200 SMA) offer great potential trade setups.
Within the 3-Bar Groups, intra-bar relations like close and open values relative to other bar , close and open values and how they are formed could give signals of continuation or reversal of trends. Gaps within the 3-bar patterns also have significance.
Three Bar Pattern groups as the name suggests, will have three continuous bars. It can be in any time-frame or in any market instrument. A 3-bar group pattern is defined using the three bar's inter-bar Open, High, Low, Close relationships with each other. In my view, Three Bar patterns are relatively short trade setups and should be traded using other indicators. They are
more effective as reversals near the end of prolonged trends than in the middle of the trends. When markets making new highs and showing a series of signs of pausing or reversals, 3-bar patterns are more reliable than 3-bars formed in the middle of the trend. Two out of three 3- Bar Groups may be successful but the concept also applies to bigger structures with three
continuous major "swing highs" and three continuous major "swing lows". When trading three-bar groups, look for the third bars' range. When the range of the third bar is greater than prior two bars, it tends to produce more reliable results.
One of the 3-Bar Groups (Market Structures) is discussed in detail in this book and here I
present few of my favorite patterns that 1 trade.
Trading 3-Bar Groups
All the 3-Bar group patterns listed below have trade-setups. Most of these patterns are shortterm
based and targets are usually at a major "swing high or major "swing low" based on the
pattern setup. Stop orders should be placed to protect the trade within the 3-bar groups. Three
bar group patterns fail when significant support or resistance is traded against the trade setup.
When trading an upside 3-bar group, place a stop order below the lowest low of the three bars.
When trading a downside 3-bar group, place a stop order above the highest high of the three bars.
INDICATOR AND DIVERGENCE
Technical indicators are constructed by manipulating some aspect of price such as a moving average of prices over a 10 day period. The Relative Strength Indicator (RSI) tries to anticipate a change in the trend. This is a leading indicator of a trend change. The results are used to deliver messages about the strength of the market. It is called an oscillator because the indicator readings are converted into percentage results which range from 0% to 100%. The position of each day’s indicator reading gives the trader an indication of the strength, or weakness, of the existing price trend.
In this sense the RSI is very similar to a stochastic and uses similar principles. Where the stochastic quantifies the ability of the market to close near the high or the low of the day, the RSI quantifies the strength of the way the market moves higher, or lower. The over-bought and over-sold signals are the same as any oscillator, although with an RSI they are traditionally set at 70% and 30%.
The most significant trading signal delivered by any oscillator style indicator is a divergence signal. This sounds complicated but it just means that the significant valley patterns shown by the RSI trend in the opposite direction to the significant valley patterns as shown by the price line chart. A valley is created by two distinct lows that each precede a rally from a downtrend. This builds a valley in the price chart. The lows of these valleys are joined with a short trend line as shown.
RSI divergence signals often appear in advance of a trend change, but they are not very good at suggesting the time of a trend change. The divergence signal may appear just as the trend changes, as in the chart extract, or several weeks before. Traders use the RSI divergence as an early warning signal to enable them to prepare for a trend change.
When the RSI and price chart lines move in the same way we get a confirming signal that the existing price trend is unlikely to change. These signals are not very important because we can get the same information from just looking at the chart.
The RSI is one of the very few oscillator style indicators where trend lines and support and resistance lines can be effectively used. These are used as signals to confirm the trend shown on the price chart. When other chart patterns suggest action, then the RSI trend line might also confirm this. When the RSI is used like this it does not give the trader any distinct advantage.
What is RSI - Relative Strength Index?
RSI is a momentum oscillator indicator which means it tracks the recent rate of rise or fall in the stock price movement based on the recent close prices. It is calculated using the following formula:RSI = 100 - 100/(1 + RS*)
*Where RS = relative strength = (Average of Gains over recent trading period)/ (Average of Losses over same trading period) Gain/Loss = Difference of current close over previous close.
The default time frame to measure RSI is 14 periods. However the same can be lowered or raised to increase or decrease sensitivity. RSI varies between 0 to 100 and the stock is considered overbought when RSI is above 70 or oversold when RSI is below 30. RSI is used to identify oversold and overbought stocks, direction of the trend and thereby trend reversals. Different researchers have come out with various ways to interpret RSI.
Some of the popular ones are as below:
When RSI crosses 30 from bottom, it indicates bullish confirmation signal and when it crosses 70 from top, it indicates bearish confirmation signal.
RSI tends to vary between 40 to 80 in bullish market and 40-50 zones act as support and pullback into RSI (40-50 zone) is buy signal.
RSI tends to vary between 20 to 60 in bearish market and 50-60 zones act as resistance and entry into RSI (40-50 zone) is sell signal.
Positive Reversal - When stock makes higher low and RSI makes lower low (not necessarily in oversold zone but could be in 30-50 zone), it signals despite weaker momentum, stock did not make a lower low and therefore shows underlying strength and signals buy.
Negative Reversal - When stock makes lower high and RSI makes higher high (not necessarily in overbought zone but could be in 50-70 zone), it signals despite stronger momentum, stock did not make a higher high and therefore shows underlying weakness and signals sell.
Bullish Divergence - When stock makes lower high and RSI makes higher low (with RSI in oversold zone), thus RSI fails to confirm price movement signalling reversal and thereby it signals buy.
Bearish Divergence - When stock makes higher low and RSI makes lower high (with RSI in overbought zone), thus RSI fails to confirm price movement signalling reversal and thereby it signals sell.
Bullish Failure Swing - When RSI moves below 30, then bounces back above 30 and then pulls back but holds above 30 and then breaks its prior high, it signals buy.
Bearish Failure Swing - When RSI moves above 70, then pulls back below 70 and then bounces back but fails to move above 70 and then breaks its prior low, it signals sell.
Note: Divergences are found to only lead to brief reversals and therefore to be used with caution. RSI can give wrong signals in very strong trends. So, RSI is best used along with other indicators.
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Basics of BO and BOF
BREAKOUT(BO): Candle should close above the levels in case of upside breakout.. this candle will be our signal candle and we are ready to take our breakout entry.. we will put our entry price above the high of the signal candle.. How much above? check the ATR(average true range).. add that value to the high of signle candle.. so that's our entry point for breakout trades.... In the same way we will do it for downside breakout..FAILED BREAKOUT(BOF): If its not a Breakout then it will be a Failed breakout... Price will not sustain above the level.. then we will wait for down close below that level. And that will be our signal candle.. and we will put our entry below the low of signal candle... For how much below you can use ATR indicator value.
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Candle divergence
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NVK SETUP
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Three Drives Pattern in Trading
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Master Candle
What is a Master Candle?A master candle forms when a large candle makes a recent high and low that engulfs the following four or more candles. Take a look at the example below:
The minimum number of candles the master candle needs to engulf is four, but the more the better. When a master candle forms it is an area of support and resistance being set.
Why Are They Useful and What Do They Mean?
I find it is easiest to think of master candles as mini scalp lines. The high and low of the master candle represent recent areas of support and resistance. As candles form within the boundaries of the master candle the areas of support and resistance grow stronger. So trading master candles is like trading scalp lines or range breaks. The market falls into a range that is dictated by the high and low of the master candle. Once that high or low is broken the market
should rally. The more time before the break the stronger those boundaries become. Think about a master candle as a cross between support + resistance lines and candle patterns.
How Accurate are They?
Like any form of technical analysis, if you trade it alone and you blindly jump in without thinking you will lose. These patterns only work if the trader using them has a brain and is willing to use some discretion. A trading method only works if a real trader is trading it. So master candles can be as accurate as giving you 8 wins in every 10 trades using them. However, this will only be true if you use them in conjunction with other forms of analysis, common sense, and your brain.
What Makes a Strong Master Candle?
As with any form of analysis, some signals can be stronger than others. For example, when trading scalp lines a scalp line that has had three very strong, recent bounces is stronger than a scalp line with one weak bounce.
Let’s look at some of the things that make a master candle stronger:
1. Line Bounces
We know that the more bounces a scalp or support + resistance line has the stronger the line becomes. This is simply because every time the price
bounces away from that level it shows us that the level is a strong barrier. The more it bounces the stronger that barrier becomes. So when the price manages to eventually break that barrier it makes for a much better trade.
If the candles within the master candle bounce off of the high or low of the master candle it makes that high or low stronger. Therefore, a break of that high or low should make for a better trade, as the price should have a stronger than normal rally. Take a look at this example below:
Looking at the picture above you can see what I mean. The candles trapped within the boundaries of the master candle keep on testing the resistance lines. The more times the price rejects that line the stronger the line becomes.
2. Scalp or Support + Resistance Lines
If the master candles high or low happens to form on a pre existing scalp or support resistance line then that line becomes stronger. It becomes stronger because more than one form of analysis points to the same line being an area of support or resistance.
3. Psychological Levels
Same as above, if the master candles high or low happens to form on a strong psychological level Iwould consider the line stronger.
4. Time
The longer the master candle holds out the stronger it becomes. However, if it holds for too long I might consider it invalid. I give it about 24 hours to break. If it cannot break in 24 hours I scrap the master candle.
5. New highs or lows
If the high or low of a master candle doubles as a new daily, weekly, monthly, yearly or all time high or low it obviously makes the master candle stronger. Here is an example:
As you can see the master candle that formed on the 5th of December formed a new yearly low. I
would consider that line stronger than the line up top. This is just common sense.
So depending on how and where they form some master candles can be stronger than others.
This is so straight forward I do not know if it can be explained any more. The master candle forms a high and a low. When that high or low is broken the entry is triggered. However, as usual this breakout trading is a little different than most types of breakout trading. I like to use my brain when entering a breakout trade. I do not robotically enter the moment the line is broken. There are several factors that dictate whether or not I get into a trade, and if I get into the trade, when I get in.
Targets and Stops
Master candles are very subjective. Targets depend on where/when they form, market conditions, and line strength. Obviously if the master candles low forms on top of a strong support + resistance line the target on the break will be larger.
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Trend Catching System - perfect...
Name of System: Trend Catching System (I do not know its name)
Timeframe: H1 and over
Pair: Any trending pair, GBPJPY preferred
This is very simple trading system that anyone can easily master after a little practice on a demo account for some time. The system has a high accuracy rate and TP can be hit most of the time. This system aims at catching the pips when a trend is in the play. The indicators will help you spot these cool periods. Here is a screenshot of the system.
How to setup your charts
1. Download the BBANDS indicator from the bottom of this post and place it in your experts/indicator folder
2. Download the template and place in in the metatrader/templates folder
3. Apply the template on your chart.
Since the system uses a lot of moving averages, placing them manually can detailing them here can be confusing, so using the template provided here is the best solution. You can always study the setup from your charts directly and investigate into the moving averages and their individidual values. The setup is using 10 moving averages in all.
When to BUY
1. When the BBANDS indicator turns BLUE
2. When the Blue moving averages cross and go upwards. The two thick blue moving averages need to be some distance from each other and not stuck together. This indicator that there is momentum in the UP move.
3. When the Blue Moving averages are above the WHITE CHANNEL
4. When the MACD histogram is ABOVE the ZERO line and also ABOVE the RED line.
These are the steps that you need to follow closely to identify a BUY setup. If you stick to these rules, you will end up with green pips most of the times. The major problem occurs when you try to burn one of the rules.
The Takeprofit and Stoploss is at your own discretion. These values depends on the charts on which you are working on. For example on the H1 chart, you should aim at a lower TP( e.g 60pips) and on the H4, you can aim at a higher TP(e.g 100pips+)
Refer to the screenshot above for the buy trading rules.
When to SELL
You open a SELL position exactly when the opposite of the Buy setup occurs which are as follows:
1. When the BBANDS indicator turns RED
2. When the Blue moving averages cross and go downwards. The two thick blue moving averages need to be some distance from each other and not stuck together. This indicator that there is momentum in the DOWN move.
3. When the Blue Moving averages are below the WHITE CHANNEL
4. When the MACD histogram is BELOW the ZERO line and also BELOW the RED line.
Refer to the screenshot above in order to get a clear idea on the SELL signal generated by this system. The same rules for the Takeprofit and Stoploss levels apply to the sell as well.
When not to trade
1. You should not be taking any trades when all these rules have not been met.
2. You should not be trading when the Blue moving averages are stuck to one another, this shows that the market is ranging and this system will not make money in ranging markets.
When to CLOSE your trade
Your trades should be closed automatically if you have takeprofit and stoploss in place. However, if you are available to monitor your trades, you can wait for an opposite signal to occur then you close your trade to open the opposite one. This make you catch more pips than in a fixed takeprofit setup. Trailing Stop can also be good, however it should not be too tight as you will be out of the good trades too soon.
Final Words
This system is a neat little system with clear straightforward rules. If you follow them closely, I do not see any reason why you will not end up with a climbing equity curve. However, you will need a few weeks of practice in order to understand how the system acts and reacts to the market changes and get acquainted to it. I hope that you will have a good and enjoyable experience with this trading system. Wishing you lots of luck in your trading. Also, would like to hear from you and benefit from your experience.
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Intraday Trading - EMA Setup Graphical Explanation
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2/20-DAY EMA BREAKOUT
system definedBuy alert: If today's low and yesterday's low is greater than the 20-day EMA. This signal remains valid until the low touches or falls below the 20-day EMA.
Buy entry: Place a stop order 10 ticks above the two-day high. This will help ensure buying with the new trend and help to avoid false signals. Keep order until filled or as long as the buy alert is still valid.
Long exit: Place a stop equal to the 20-day EMA. Continue to update this stop daily to form a trailing stop.
Sell alert: If today's high and yesterday's high is less than the 20-day EMA. This signal remains valid until the high touches or rises above the 20-day EMA.
Sell entry: Place a stop order 10 ticks below the two-day low. This will help ensure that you will sell with the new trend and help to avoid false signals. Keep order until filled or as long as the sell alert is still valid.
Short exit: Place a stop equal to the 20-day EMA. Continue to update this stop daily to form a trailing stop.
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http://www.mediafire.com/download/0zjy1y1n2g4cn27/FunFilledGaps20111129.pdf
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CHANGE OF TREND(courtesy LANCE BEGGS)
UPTREND: when price is making a series of higher high and higher lows,it is called to be in up trend
DOWN TREND: when price is making a series of lower high and lower lows, it is in down trend
CHANGE OF TREND :In a down trend(series of lower low and lower highs),if price breaches the lower high,just before the lowest low,and then sustains above,it is a change of trend
same way in a up trend (series of higher high and higher lows),
if price breaches the higher low,just before the highest high,and sustains lower,it is a change of trend
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Three Day System
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http://www.magicbreakout.com/downloadbook.php?file=MagicBreakout.pdf
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