Advanced system #5 (Trend Lines Breakout System)

Hello Edward,
Thank you so much and your team for your hard work!

1.I am looking for an additional filter for this strategy, any suggestion?
If the session opens above the pivot point for example, is it safer to only trade long opportunities? same with a long term ema that would indicate the general trend?

2.Also I have noticed that during this time frame there are a lot of important news releases regarding the EUR and the GBP that move the market. How do you trade these news? Ignore them? Wait for a minimum of time before enterring/exiting?

3.Once in a trade, is there anything that makes you close the trade at break even or at a loss, instead of letting it hit your stop loss?

4.If there is a swing high or low at 23:00 EST, could it be taken in account for this strategy? It seems to happen before a long trend.

Thanks again!
Sara

Hi Edward,

Thanks for the clarification.

I think recognizing when there is a sideways channel and not trading during this time was the missing link. I didn’t know about this and looking at the 1 hour chart didn’t give me a heads up.

Would you please show me exactly how to spot a sideways channel (the beginning and end of it) and then show me how to draw the S and R levels based on it?

You also mentioned you prefer EST when trading this strategy. Do you stay up the whole night waiting to draw trend lines or how do you make it work? =)

I’m on PST right now… Any suggestions on the easiest way to make it work during this time zone? You might think its silly but the graveyard shift is tough. =)

Thank you and great weekend,
Paul Stevens

Hi Sara,

Thank you for your questions.

1. Yes, you may try taking only long trades above Pivot point; you may also try using , for example, 200 EMA to identify a main trend and take only long trades above 200 EMA and only short below it.
I would only encourage testing and experimenting.
However, I still see this strategy working fine without additional EMAs and Pivots to filter trading directions.

2. This trading method allows ignoring news and that's what I do. News can also be on our side helping to profit quickly. If not, I always have a stop in place.

3. I prefer either my stop to be hit or a profit target be reached. We have only three hour trading limit anyway (3 hours since the trend line breakout), so it is better to let a trade run unchanged.

4. The strategy doesn't validate swings before midnight, but there is always a room for testing. I have no advice on that since I haven't traded 23:00 EST swings. If you decide to, it would be good to keep notes on the success of such trading. If it is working, then why not trade it :)

Best regards,
Edward

Hi Paul,

The reply to your comment is in process (it's left to make some illustrations).
I hope to finish it this evening or tomorrow morning.

Regards,
Edward

Hi Paul,

Even after I said that a sideways channel might be the culprit of recent losses there was no way we could use this data early enough to prevent majority of losing trades. Why?

In order for a sideways channel to form on a daily chart we need time (often a week or two) for the market to create a series of waves that would validate its channeling activity. Since our strategy advices looking for trading opportunities every day, we are bound to make a lot of trades before we know that price actually was forming a sideways channel.
Also since sideways channels are found through pure chart observation, it ultimately means that some traders will spot sideways patterns earlier than others.

The main approach tor identifying sideways channels is by looking at waves (tops and bottoms) made by price.
Tops are called and marked as resistance, bottoms - as support levels.
Once a Resistance level is broken it becomes a Support level. And vice verse.

As long as support/resistance levels are passed successfully price advances either up or down - it trends.
Once a new wave fails to advance through the closest support or resistance for the first time, it attempts to find an exit at the opposite end, where it inevitably meets another support/resistance level. If the failure repeats again, than price becomes trapped in between support/resistance levels on both sides.
From that moment and till it breaks through those boundaries market is going to trade in a sideways channel.

From the illustration above, if on a re-test of Resistance price fails to advance through the level, we are going to have a sideways channel established (because earlier a re-test of Support already resulted in a bounce back).
A sideways pattern will be valid till price breaks out of the channel.

Here is our old screen shot with waves and S/R levels on it:

While some traders prefer using absolute tops and bottoms of price waves to mark support/resistance levels, others choose points where price has actually closed for the day. It is done at own discretion and is rather an art and vision of each individual trader than a rule.
Many would say that Support/Resistance level is an area, not a fixed price point. This is probably the most rational approach; it is also the one I use.

(The reason why I chose fixed numbers - 1.5400 and 1.5600 - instead of areas in my earlier post and screen shot was because I felt it would be easier to address further discussions to distinctive round numbers, plus it is well known that such round figures by themselves have a "stumbling" effect on the market.)

Here is the same screen shot with Support/resistance Areas instead of fixed levels on it.

Let's now zoom it in:

Well, I hope you find it useful.
As about timing, I'm afraid I won't have any suggestions for you. This particular strategy was tailored to a specific time.
Someone even asked me earlier about trying the strategy during Asian breakouts. The point is, I don't know how this strategy will perform during other market hours.
So, if you are passionate about testing, try it out. I would also be interested to hear about results.

Regards,
Edward

Thank you Edward for your detailed e-mail and illustrations.

So, without a verifiable sideways channel on the Daily chart we simply trade the strategy and hope the percentages will be on our side correct?

Would the 4 hour chart help in identifying a sideways channel or do we have to use the Daily chart?

Thanks again,
Paul

Hi Paul,

I'd use daily charts and simply trade the strategy.
That is my vision, however I'm always interested to learn about arguments in favor and against my approach from other traders and build productive discussion.

Regards,
Edward

Nice work. Thanks :)