Carl Croft Carl is an active trader of forex, stocks and commodities who mainly uses charting and candlestick strategies.
Rules for a Long Trade
We hold this trade for 9 periods before closing the position. We exit the market when a bigger bearish candle closes below the TEMA with its full body. We hold the long position open for 14 periods before one of the bearish candles on the way up close below the TEMA. Notice that in this stock trading setup we have no on-chart trading indicator for identifying exit points.
The reason for this is that the MACD does a pretty good job of this itself. We will simply exit the market whenever the MACD has a crossover in the opposite direction! Notice that when using the MACD for exit points, you stay in the market for a longer period of time. This is the 5-minute chart of McDonalds for Sep 30, The green circles indicate the entry signals we receive from the two indicators. The red circles indicate the moment when the MACD tells us to get out of the market.
Notice that in this example, the exit point of a position is the entry point of the next one. Thus, the red and the green circles match in three cases.
This is what we are waiting for and we short McDonalds. Although there is strong hesitation in the price movement, no exit signal is provided from the MACD and we hold our position. Later on, the price moves in our favor and we close the trade when the MACD has a bullish crossover.
As we said, in this strategy example, we often open a contrary position right after closing the trade. We stay in the market for 36 periods until the MACD gives us a bearish crossover.
McDonalds starts to move in our favor, but the direction changes rapidly. Yet, the two lines of the MACD interact, but they do not create a crossover. Thus, we hold our short position for 39 periods.
With the exit of the previous position came the entry point for the next trade. Thus, we go long and we enter the best trade of the four cases! Well, that my friend is a good trade! This 5-minute chart strategy involves the Klinger Oscillator and the Relative Vigor index for setting entry points.
We try to match long and short signals with the two oscillators, which will be an indication to trade the equity. When we get these two signals, we open a position and we hold it until we see a candle closing beyond the period LSMA.
This is the 5-minute chart of Yahoo for Dec 8, The two instruments at the bottom are the RVA and the Klinger. The blue curved line on the chart is the period LSMA. On this chart, we have four trades.
The green circles show the four pairs of signals we get from the RVA and the Klinger. First, we get a bullish signal from the Klinger, which is confirmed by the RVA after 4 periods. When we get the confirmation, we go long. We manage to hold the trade for four candles before we see a bearish candle below the LSMA. Four periods later, the Klinger and the RVA give us bearish signals at once and we go short. We get a slight bearish move of four periods before a candle closes below the LSMA.
The third trade is the most successful one. Six periods after the previous position, we get matching bullish signal from the Klinger and the RVA. Thus, we go long with Yahoo. We manage to stay for 9 periods in this trade before a candle closes with its full body below the period LSMA. Notice that at the end of the bullish move, there is another bearish candle, which closes below the LSMA, but not with its full body. Therefore, we disregard it as an exit signal.
With the next candle, we get bearish signals from the RVA and the Klinger and we go short with the closing of the previous long position. We get out of this trade after 5 periods when a bigger bullish candle closes above the LSMA. The reason for this is that this strategy distributes the trading along the entire trading day. In the example above, we covered the whole day with only 4 trades.
Furthermore, we generated an impressive amount per share! In the other two strategies, the amount of trades per day will be significantly more. In the case of short positions, we are looking for exactly the opposite occurrence than we had looked at a moment ago. Each time price crosses below the 8 period EMA, I have another opportunity to open up a short position. If you notice the right side of the above chart, you may see that price begins to find support on the 8 period moving average — indicating that we may have a reversal of trend; and that brings us to one of the most beneficial parts of the Finger-Trap trading strategy: If we are placing trades on the 5 minute chart, and looking to only take part in strong moves in the direction of the trend we had identified on the hourly chart; we have quite a bit of flexibility in how we want to consider risk.
In the article Price Action Swings , we had identified a mannerism of capping risk when trading trends. When placing a long trade, I want to ensure that price remains supported for the duration of my trade.
If short-term support is broken, I run the risk of the pair continuing to move against me, further draining my account. To a scalper, this can be extremely dangerous as fast markets can exhaust an account balance very quickly.
Once again, in the event of short positions, we would be looking at the opposite scenario; looking to place stops just outside of the recent swing-high so that if price reverses the down-trend that we were looking to take part in, we may cut the loss early. DailyFX provides forex news and technical analysis on the trends that influence the global currency markets. Take a free trading course with IG Academy.
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Results achieved on the demo account are hypothetical and no representation is made that any account will or is likely to achieve actual profits or losses similar to those achieved in the demo account. Conditions in the demo account cannot always reasonably reflect all of the market conditions that may affect pricing and execution in a live trading environment.
Price action and Macro. Please enter valid email. Please fill out this field. For a sell signal both the lower Bollinger band and the middle moving average of the Bollinger band must be below the exponential moving average. For a stronger sell signal all three of the Bollinger bands should be below the exponential average.
There are things to look for which will become very apparent as you trade this in real time yourself. Make sure you test out this system on a demo account before you trade it for real, and make sure you get a feel for when the best trades might come. One of the things you might want to look for are the tightening of the Bollinger bands after a change in direction, often a small impulsive push comes right afterwards.
Once you have determined if the price is in buy or sell mode you will then be looking to enter a trade. This system takes trades in the direction of the Bollinger bands into the extremes.
So for instance on the chart below, buying mode has been established because both the upper Bollinger band and the middle Bollinger average are above the exponential moving average. Once an up candle has formed you are looking for the price to break beyond the high of this candle.
Take a look at the example on this chart. The first highlighted area shows a candle closing up, which then moves higher on the open of the subsequent candle. This would be where you enter the trade. Your stoploss would be placed at either the last low in the price, or at the lower Bollinger band. This is now where practice comes into play. To keep your risk to a minimum you need to be fast and efficient at moving your stoploss up under the price.
What you are looking for is the price to continue and approach or touch the upper Bollinger band. Once it moves towards the upper Bollinger band you need to move your stoploss up to the middle Bollinger band level. This will remove most of the risk from the trade. If the trade moves up sharply you may want to place your stoploss at breakeven right away actual entry point. With practice you get a feel for the correct place to put your stoploss to allow your trade freedom to move.
Often after the Bollinger bands have contracted price breaks out with a sharp move. If you are quick and get your stop to breakeven you can look to exit this trade somewhere between one or two times the risk distance between your entry and initial stoploss.