Method 1:
Trading method basics
1. Specific setup condition
2. Specific entry rule
3. Specific initial stop
4. Specific exit rule
Uptrend setup conditions
1. Both the 9 & 18 day MA are up or flat, & one of them has turned up from the previous day.
2. ADX > 16 any time in the past 2 weeks
3. Stand aside if the following occurs
- Evidence of bearish divergence as defined by pip reversal method
Entry rules:
1. Once the setup day occurs, we can consider placing a trade for the following day as follows:
- BUY on the open at the market
2. With this order we are buying on strength after 2 key moving averages have both turned up.
Uptrend Initial stop
Determine whichever of the following has the lowest risk This is the Initial Stop Price
- Entry price - 100 pips OR
- setup day low
When the entry order to buy is filled, immediately place the initial stop order as follows:
-SELL at Initial Stop price
Uptrend Exit Strategy
The strategy to exit the trades profitably is to scale out of each trade in two steps:
- First, to exit half of the position at a predefined profit target.
- Second, to exit the remaining half of the position using a trailing stop.
Exit half of the position as follows:
- SELL at entry price + 1 Five day Average True Range (ATR) LIMIT
After the Profit Target Exit has been hit for the first half of the position, exit the remaining half as follows:
- SELL at LL3 - 0.1% of the LL3 STOP
- The LLS is the lowest low of the past 3 days.
Downtrend strategy is same as Uprend except it is reverse.
Method 2:
This method complements method 1
The Indicatores
Moving Averages
- 40 day simple average
- 3 day simple moving average (based on the low)
- Self-fulfilling outcome
ADX
- 14,14 setting
Uptrend setup conditions:
A. 40 day MA of today > 40 day MA of 5 days agon
B. LL10 > LL35
C. 3 day MA (based on the low) has turned down any time in past 5 days
D. HH3 < HH10
E. ADX > 16 any time in the past 2 weeks
F. Stand aside if the following occurs:
- Evidence of bearish divergence as defined by the Pip Reversal Method
Uptrend Entry Rule:
Once a setup day occurs, we can consider a trade for the following day as follows:
- BUY at HH3 + 0.1% of HH3 STOP
- The HH3 is the highest high of the past 3 days
With this order,we are buying on strength after the market resumes its 40 day uptrend.
Uptrend Initial Stop
When the entry order to buy is filled, immediately place the initial stop order as follows:
- SELL at LL3 from & including setup day - 0.1% of LL3 STOP
- The LL3 is the lowest low of the past 3 days
Uptrend exit strategy
The strategy to exit the trades profitably is to scale out of each trade in 2 steps.
- The first step is to exit half of the position at a predefined profit target.
- The second step is to exit the remaining half of the position using a trailing stop.
Profit Target Exit
- Exit half of the position as follows:
SELL at entry price + 2 Five Day Average True Range (ATR) LIMIT
Trailing Stop Exit
After the Profit Target Exit has been hit for the first half of the position, exit the remaining half as follows:
- SELL at LL3 - 0.1% of the LL3 STOP
Downtrend strategy is reverse
Pip Reversal Method:
The Indicators
Moving Averages
- 18 day simple moving average
- Self-fulfilling outcomes
Slow Stochastics
- 8,3,3 setting
- Critical role in identifying divergent markets
ADX
- 14, 14 setting
Bearish Divergence setup condition
Point 1 - Is a swing high* that < Point 3
Point 2 - Is a swing low between points 1 & 3
Point 3 - Is the highest high of the last 4 days and the last 20 days.
A. 18 day MA is going up
B. Maximum high of past 4 days = maxim high of past 20 days (Point 3)
C> Point 3 > a swing high (Point 1), and the number of days between those 2 highs must be a maximum of 15 days, and a minimum of 5 days
D. Stochastics %K >= 85 within 2 days of Point 1
E. The highest stochastics %K within 2 days of Point 3 < highest stochastics %K within 2 days of Point 1
F. Stochastics %K of setup day hooks down from the previous day's value, and either of the following occurs:
- High of setup day < HH4 (Point 3)
- Outside bar occurs whose close is down in the range of the outside bar.* In this case, the oustside day high is Point 3.
* An outside bar is one in which its high is higher than the previous day's high and whose low is lower than the previous day's low
G. Close of setup day > 18 day MA
H. ADX > 15 any time in the last 2 weeks
Bearish Divergence Entry Rule:
Once a setup day occurs, we can consider placing a trade for the following day as follows:
- SELL SHORT at 18 day MA LIMIT
The order will usually be filled around the open, as long as the open > 18 MA.
If not filled the day after setup day, stand aside.
With this order, we are selling short on potential weakness just below the HH4 (Point 3) as the market peaks & begins at least a correction down.
Bearish Divergence Initial Stop
When the entry order to sell short is filled, we will handle the initial stop as follows:
- BUY if the market closes above the point 3
- Use this stop for the first 3 days in the trade, including the entry day.
Bearish Divergence Exist Stratefy
1. Profit Target Exit
- Exit half of the position as follows
- BUY at entry price - 1 five day Average True Range (ATR) LIMIT
2. Trailing Stop Exit
- At the same time we want to protect the entire position by using trailing stops as follows:
- For the 4th and 5th days in the trade:
- BUY at point 3 + 0.1% of point 3 STOP
- After the 5th day in the trade, use a trailing stop based on the HH3 that is updated each day.
- BUY at HH3 + 0.1% of HH3 STOP
- If Profit Target not hit before, cover entire position. If the Profit Target was hit, cover remaining half of the position
