For Long Trades, the Stock or Index MUST make a better swing high, followed by a better swing low on the daily chart. We enter the trade once the worth rallies from the upper low.
For Short Trades, the Stock MUST make a lower swing low followed by a lower swing high on the daily chart. We enter the trade once the worth falls from the lower high.
“Trend Continuation entries are taken within the Impulse legs of Trends. they’re not taken when price is within a consolidation period or a reaction.
The rules for Trend Continuation trades are –
For Long Trades, the Stock price must be above a legitimate Trend line.
The price bars must be above the long run (usually 18 days) Moving Average on the daily chart.
The Stock must be making higher swing highs and lows on the daily chart.
The reactions within the uptrend must be but 4 days.
For Short Trades, the Stock price must be below a legitimate Trend line.
The price bars must be below the long run (usually 18 days) Moving Average on the daily chart.
The Stock must be making lower swing lows and highs on the daily chart.
The reactions within the downtrend must be but 4 days.
“Moving average periods are Stock or Index specific, in other words, attempt to find a mixture that works on the markets you is curious about trading that does not give too many whipsaws. for instance, 9 and 18 periods work well on many Stocks. Sometimes you’ll go as low as 6 and 13, otherwise you may have the maximum amount as 15 and 30.
“Play with it and find the optimum Moving Average numbers for the Stocks you trade. Then you’ll add the Trend line and swing high and low rules and you’re able to search for some trades.
“A Valid Trend line must touch a minimum of 2 and preferably 3 datum extremes – three significant highs or lows within a trend.
So, in summary, this is often Peters Trading Plan…
To enter a trade on a Trend Reversal, he needs a Trend line break, a Moving Average crossover, and a swing higher or lower to urge set in an uptrend, and a trend line break, a Moving Average crossover and a lower swing low and lower swing high to enter a downtrend.
To enter a Trend Continuation Trade, he needs a strongly trending market with reactions to the most trend of but 4 days. He enters with the most trends because the reactions come to an end and places his stop loss orders just past the swing pivot extreme just in case the trend fails to continue.
“Now we’ve checked out my rules for entering trades, let’s put them to figure on a Stock,” he said to Paul.
Turning to his display screen, Peter opened a chart of IGT and scrolled back to 2001 – about half way through the market.
Charts available at StockTradingReview.com
“We know that at now in time, the weekly and monthly trend during this Stock was down, so we are trying to find a legitimate entry with the trend at the top of a bigger degree reaction – a trend continuation trade.
“I have removed about two moving averages for clarity – these are 7 and 13 periods.
“You can see that the Stock made a coffee on August 8th, then rallied for 14 trading days including the within day after the day of the high.
“It then fell sharply, breaking a swing low. Two inside days then at some point up followed, then another inside day, followed by each day that broke the low of the within day but closed slightly higher.
“The moving averages were coming very approximate; therefore the third filter I exploit to enter was nearly in situ, as we had already had the trend line break and lower top.
“The Stock broke down subsequent day, and at the close, the moving averages had crossed – I sold $20,000 worth of IGT short at the close and it fell sharply for five days before recovering.
“It had a two day rally, then each day down, so I moved my stop loss order to above the swing high today down formed and was taken out of the trade three days later after price rallied.
“My entry was at $13.18; my exit was at $10.70, giving me a net income after Brokerage of $4,605 for a 13 day trade.
Paul could see the set-up quite easily now once it had been shown to him in an example.
Peter continued, “Let’s have a glance at another example.” Peter opened a chart of MER and scrolled back to at least one of his trades from May 2002. Charts available at StockTradingReview.com
“This trade was also when the market was well underway and MER was during a strong downtrend on the weekly and monthly chart.
Looking at the daily chart, Peter said, “This Stock made a coffee, and then rallied for 10 days. It then made a lower swing low then rallied 2 days – the lower swing low is Filter one.
“It touched my short term trend line 4 times because it rallied before breaking down – that’s Filter two.
“It then fell two days, had a 1 day rally, then gave a sell signal because it took out the low of that day.
“This trade didn’t end in an equivalent quick profit because the one in IGT, but it had been very satisfying all an equivalent. My entry was at $40.55 and my exit was at $33.20 because it broke upwards through my stop loss order above a swing high.
“This Stock gave me several more good profits because the downtrend continued. The set-up is usually an equivalent.
“A short term Trend line breaks, a Moving average crossover, a lower low and lower top during a downtrend.
“Let’s have a glance at an uptrend so you get the thought of what it’s like during a rally.” Peter opened a chart of MSFT from Mid 2003, when the weekly and monthly trend had turned upwards.
Charts available at StockTradingReview.com
“You can see here that MSFT made a high in early July then sold off for nearly over 5 weeks.
“Then the moving averages crossed and therefore the short term downtrend line was broken convincingly by an outsized rally off multiple lows at around $25.50. This found out a 5 day rally, then the Stock fell at some point before recovering at the on the brink of be abreast of the day.
“The buy signal was generated at the close, as this met all of the conditions. The Stock rallied over 20% during subsequent 5 weeks – that was very pleasant to observe.”
Paul could see the simplicity of Peter’s trading methods and was keen to travel out and apply them within the stock exchange.
Peter cautioned him however, “Remember Paul, not all trades are this easy and switch out also, but by trading these sorts of trends on the daily chart, when the weekly trend is additionally within the same direction, we’ve a high probability of a profitable outcome during a large percentage of cases.
“Trying to guess tops and bottoms may be a dangerous practice. it’s a high risk trading strategy that rarely produces consistent profits.
“It are often done using time, price and pattern to assist us, as I did at the low within the S&P 500 the opposite day, but the straightforward trades are once we take a bit out of the center of every with-the-trend range, and leave the tops and bottoms for others until our understanding improves.
“Before you trade the market with actual money, I would like you to paper trade for 3 months, or until you’re profitable 70% of the time.
“Once you’re profitable together with your paper trading, only then are you to risk your money within the market – is that understood?”
Yes Paul replied.
Peter continued, “Stay well within your temperature, preserve your capital and build your account over time. Your success should then be assured.
“The rules are there for you to find out and apply, but your greatest enemies are your own fear and greed.
“These two will rob your account if you do not gain control over them. you want to take every trade your system gives you, follow your rules exactly, and hold close your trading plan sort of a shipwrecked sailor does to a Carling float.
“Imagine that your life depends on you following your trading plan perfectly…because it does.
“At least the life you would like for yourself and your loved ones do.”
Paul agreed to review hard and to undertake to beat his emotions of fear and greed. He knew it wouldn’t be easy, but he was getting to do whatever it took to succeed as a trader.
With that, the lesson was over for that week.
Paul left Peter’s office feeling like he had just been handed the keys to the vault and knew his trading would never be an equivalent again.
When he arrived home, he went straight to Incrediblecharts.com and studied his watch list. He picked out some Stocks that looked promising and began to paper trade them.
He couldn’t await his next meeting with Peter – he was again crammed with hope and gratitude for the time Peter was spending with him, and he vowed that when he was a profitable trader, he would help others achieve the market.
His new trading life was close to begin…
To Your Trading Success,
Tony Spann and therefore the Team
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