StefGrig Posted October 1, 2008 Report Share Posted October 1, 2008 Most of the time, markets don't show a clear trend - they bounce back and forth between support and resistance levels. This sideways movement is called a trading range. Below is a strategy that can help you identify entry points on short-term trends, while protecting your profits with trailing stops.+ Trade Set-up The strategy uses two charts with different time periods (10-minute and hourly), along with two technical indicators: a 200-bar moving average and a 14-bar slow stochastic study. Step 1: Identify a trend Compare the moving averages on both charts. A trend may be developing when price is consistently above or below the moving averages on both charts. Step 2: Pinpoint entry Once you've identified a trend, look for the following two conditions at the same time on the 10-minute chart: Price is no more than 20 pips above (to buy) or 20 pips below (to sell) the MA. The "fast" stochastic (%K) crosses above the "slow" stochastic (%D) below 20 (to buy), or crosses below the "slow" stochastic above 80 (to sell). Step 3: Ride the trend Set a trailing stop after the trade entry. On a LONG position, the stop order should be 10 pips BELOW the 200-period MA on the 10-minute chart. You'll RAISE the stop as the trade goes in your favor. On a SHORT position, place the stop 10 pips ABOVE the MA. You'll LOWER the stop as the trade goes in your favor. An example: EUR/USD, June 2002 Step 1: compare the hourly and 10-minute EUR/USD charts. Look for a time when price is above the 200-period moving averages on both charts. On the hourly chart, price is almost exclusively above the 200-hour moving average, indicating a persistent uptrend. On the 10-minute chart, price moves (and remains above) the moving average in the last third of the chart. Step 2: pinpoint the entry zone - when the market is within 20 pips of the moving average on the 10- minute chart, and the stochastic lines cross. As indicated in the chart, conditions are right around 8pm on June 27. Buy EUR/USD at .9883 Protective t-stop set at .9858 (10 pips below MA) Sell EUR/USD at .9992 Protective t-stop has moved up to .9967 Profit = 84 pips, or US $840 + Placing contingent orders may not necessarily limit your losses. by Technical Analysis . Quote ---- My Ambition is beyond My Knowledge ---- Link to comment Share on other sites More sharing options...
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