Magpie Trader
Thursday, August 25, 2005
My strategy falls into four parts
1. Top down analysis
a. My Daily and 4 hour charts are set up with Exponential moving averages all with a common theme that they are divisible by 17.
17, 34, 85, 170, 408. The reason for ‘17’ is something I noticed on the daily chart that it will be around 17 trading days for a top to a bottom, or a trend change of some sort. 17 trading days equates roughly to a full lunar cycle, when weekends are taken into account, and as is fairly common knowledge trends tend to begin or end around a new moon to full moon.
I find in trends that price will use the 17 and 34 EMAs as support or resistance. The other EMAs mentioned act on price in other ways that you can check out by looking for yourself.
b. I also use Daily bar analysis, which is what I call it anyway…. It’s basically looking at the previous days bar in relation to the bar before it (2 days ago). Did it have a higher high and low, was it an inside bar/outside bar etc.
c. Trend lines are important obviously, as well as Fibonacci levels and previous support and resistance (Soultrader' support & resistance video was enlightening for this). Tom DeMark has his own way of drawing trend lines (TDTLs), but I tend to draw a basic line on the daily chart and use TDTLs on the shorter timeframes.
d. I’ve got MACD on the Daily and 4Hr charts. I know they essentially tell me the same thing but the differences, when they occur, give extra clues as to where price is heading.
e. I use the daily and Camarilla pivots as guides also.
2. Putting on the trade
What I'm looking for is a confluence of events, like a pivot holding or breaking, any of the ACD trades, bollinger band supporting or resisting, EMAs holding or breaking, MACD confirming a few bars later after the trade is on. I'm looking across all the time frames, preferably with the 30min chart looking positive and the 15 and 5 min charts turning or continuing in the direction of the main hourly, 4 hourly or daily trend.
I see where we are in relation to the previous daily bars (support and resistance, Fibs and trend lines) on the 4 hour chart. I draw TDTLs here and do some price projections from them. I also use Fibs and Steve Nison projections. When they agree to within a small range in price is when it gets interesting - combined with an ACD entry 'stepping on the gas' takes place here. Otherwise a smaller amount is used for entry (or no entry at all) until confirmation is achieved
I use a period 60 Bollinger band, with EMAs, on the hourly chart with MACD. This gives the intraday trend and support and resistance turns.
The 15 minute chart is used for daily pivots and MACD for turn confirmation and trend confirmation.
My entry will always revolve around TDTL breaks, candlestick patterns like 1-2-3, tweezers (railroad tracks), double tops/bottoms, hammers, spinning tops, and indicator divergences or internal indicator TL breaks - Also ACD entries.
To actually put on the trade, I’ll move down to a 5 minute chart with RSI 6 and 60 period Bollinger bands. Sometimes I’ll have the 1 minute chart open with RSI 9 looking for divergence or TL break to enter the trade. The 5 and 15 minute charts are used in a similar way, but a candlestick like a spinning top or hammer will also provide entry when price heads 1 pip (incl. Spread) above or below in the desired direction.
3. Exiting the trade (or taking partial profits)
This is exactly the same as my entries, but I'm looking for signals around TD price projections or Trend line support/resistance or EMA support resistance, pivots, price support/resistance, fibs. If the 'sky is the limit' to a trending trade I'll initially keep a stop above or below the previous hourly bar, as profit increases a stop under the previous days low (combined with 3 day rolling pivot analysis) will keep me in the trade while giving it enough room, especially when I'm not there to monitor it
4. Money management
Depending on the trade and the ACD values, and other factors mentioned here I'll use smaller amounts for trades I'm not so sure on, adding in as things improve or scale out or get out if things don't go my way. When things line up and nearly everything is in agreement i'll increase size, looking for early confirmation and another add in point. As these situation's aren't that common it makes sense to capitalise on them.
I use stop losses and these are usually put 2 pips above or below the previous point of resistance/support (opening range, pivot, price S and R) that caused the entry signal. I've also started using the ACD method for stops and time stops also and have noticed a decent improvement in profitability.
I suppose it looks quite complicated, but if it was easy everyone would be doing it. I'm fortunate that I've found something that works for me now, but in this job there's always room for improvement which is an ongoing process.
a. My Daily and 4 hour charts are set up with Exponential moving averages all with a common theme that they are divisible by 17.
17, 34, 85, 170, 408. The reason for ‘17’ is something I noticed on the daily chart that it will be around 17 trading days for a top to a bottom, or a trend change of some sort. 17 trading days equates roughly to a full lunar cycle, when weekends are taken into account, and as is fairly common knowledge trends tend to begin or end around a new moon to full moon.
I find in trends that price will use the 17 and 34 EMAs as support or resistance. The other EMAs mentioned act on price in other ways that you can check out by looking for yourself.
b. I also use Daily bar analysis, which is what I call it anyway…. It’s basically looking at the previous days bar in relation to the bar before it (2 days ago). Did it have a higher high and low, was it an inside bar/outside bar etc.
c. Trend lines are important obviously, as well as Fibonacci levels and previous support and resistance (Soultrader' support & resistance video was enlightening for this). Tom DeMark has his own way of drawing trend lines (TDTLs), but I tend to draw a basic line on the daily chart and use TDTLs on the shorter timeframes.
d. I’ve got MACD on the Daily and 4Hr charts. I know they essentially tell me the same thing but the differences, when they occur, give extra clues as to where price is heading.
e. I use the daily and Camarilla pivots as guides also.
f. I'm also using the ACD method of 6 monthly pivot range, 1st day of the month high/low and a 3 day rolling pivot range.
g. the Macro ACD method (gone into great detail in the book 'Logical Trader') of giving each day a value and counting the values is also a good indicator of sentiment.
h. the 3 day pivot range position trade - the next link after this on the main page explains it.
2. Putting on the trade
What I'm looking for is a confluence of events, like a pivot holding or breaking, any of the ACD trades, bollinger band supporting or resisting, EMAs holding or breaking, MACD confirming a few bars later after the trade is on. I'm looking across all the time frames, preferably with the 30min chart looking positive and the 15 and 5 min charts turning or continuing in the direction of the main hourly, 4 hourly or daily trend.
I see where we are in relation to the previous daily bars (support and resistance, Fibs and trend lines) on the 4 hour chart. I draw TDTLs here and do some price projections from them. I also use Fibs and Steve Nison projections. When they agree to within a small range in price is when it gets interesting - combined with an ACD entry 'stepping on the gas' takes place here. Otherwise a smaller amount is used for entry (or no entry at all) until confirmation is achieved
I use a period 60 Bollinger band, with EMAs, on the hourly chart with MACD. This gives the intraday trend and support and resistance turns.
The 15 minute chart is used for daily pivots and MACD for turn confirmation and trend confirmation.
My entry will always revolve around TDTL breaks, candlestick patterns like 1-2-3, tweezers (railroad tracks), double tops/bottoms, hammers, spinning tops, and indicator divergences or internal indicator TL breaks - Also ACD entries.
To actually put on the trade, I’ll move down to a 5 minute chart with RSI 6 and 60 period Bollinger bands. Sometimes I’ll have the 1 minute chart open with RSI 9 looking for divergence or TL break to enter the trade. The 5 and 15 minute charts are used in a similar way, but a candlestick like a spinning top or hammer will also provide entry when price heads 1 pip (incl. Spread) above or below in the desired direction.
I use the FXovereasy system as confirmation on all my trades, this is usually the final system to kick in and give a signal, from here I'm looking for add in points or possible exits if volatility drops or the SHI channel is going in the wrong direction in relation ot the trade direction
3. Exiting the trade (or taking partial profits)
This is exactly the same as my entries, but I'm looking for signals around TD price projections or Trend line support/resistance or EMA support resistance, pivots, price support/resistance, fibs. If the 'sky is the limit' to a trending trade I'll initially keep a stop above or below the previous hourly bar, as profit increases a stop under the previous days low (combined with 3 day rolling pivot analysis) will keep me in the trade while giving it enough room, especially when I'm not there to monitor it
4. Money management
Depending on the trade and the ACD values, and other factors mentioned here I'll use smaller amounts for trades I'm not so sure on, adding in as things improve or scale out or get out if things don't go my way. When things line up and nearly everything is in agreement i'll increase size, looking for early confirmation and another add in point. As these situation's aren't that common it makes sense to capitalise on them.
I use stop losses and these are usually put 2 pips above or below the previous point of resistance/support (opening range, pivot, price S and R) that caused the entry signal. I've also started using the ACD method for stops and time stops also and have noticed a decent improvement in profitability.
I suppose it looks quite complicated, but if it was easy everyone would be doing it. I'm fortunate that I've found something that works for me now, but in this job there's always room for improvement which is an ongoing process.
// posted by Magpie @ 12:34 am 
Comments:
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Hi Eyal,
Not really, I'm essentially looking for the 17 EMA to be above the 34EMA on the 4Hr chart with decent angle and separation. It doesn't really matter which pair is showing this, but the buy opportunity comes on the dips on the lower time frames. I especially like an 85EMA touch on the 1Hr chart for entry north. EURJPY had a classic on Friday. I took the trade on a demo acct as I'm still 'foreward testing' after lots of back testing.
I've also replied to your own blog.
Thanks, Magpie
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Not really, I'm essentially looking for the 17 EMA to be above the 34EMA on the 4Hr chart with decent angle and separation. It doesn't really matter which pair is showing this, but the buy opportunity comes on the dips on the lower time frames. I especially like an 85EMA touch on the 1Hr chart for entry north. EURJPY had a classic on Friday. I took the trade on a demo acct as I'm still 'foreward testing' after lots of back testing.
I've also replied to your own blog.
Thanks, Magpie
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