Forex trading strategy #4-a (1-2-3, RSI + MACD)

Hi Fraser,

The two yellow lines show that after the first wave (1st yellow line) we can count on the second wave (2nd line) to be at least equal in size. This helps to build prognosis for the minimum pips move for a second swing. I think it is quite useful.

I'm familiar with Gartley pattern, and it is applicable here too, but since calculations aren't the easiest part of it, I don't use Gartley.
But I have an indicator that can do it for you in Metatrader 4:
ZUP_v62.mq4

Regards,
Edward

Edward -

Your case 3 , with a great chart example , has convinced me that the RSI Trendline Breakout works beautifully in conjunction with 1,2,3 !

Not sure I get the significance of the two , equal in size , YELLOW lines on your chart though !

Did you get a chance to look at any of the Gartley pattern items George F. ( Forrest Gump ) commented on ??

Fraser

Fraser, you said earlier:
"...I find that a better EXIT is waiting for the MACD line to turn up/down..."

What line did you mean? Histogram line? Any other line?

Regards,
Edward

Hi everyone,

Let me join in with my observations.
I'll try to address all questions I saw.

1. The question from George about using Stochastic for wave counting. I talked about it somewhere on this website, but I can't find the link today, so here it goes on the screenshot above. Stochastic indicator smooths out the picture for us, showing the shapes of the past waves, which helps to count them or measure them. Because Stochastic moves with the price, it can cross over and then later straighten out, it is less helpful in telling where is the new wave will top/bottom out.

2. The question from Fraser about using SAR dots. I haven't talked about SAR dots here yet, but you've reminded me about one good trading method with SAR dots, which I will post this or next weekend (it'll be trading method #2), listed here: http://forex-strategies-revealed.com/trading-methods

3. Elliott waves. The beauty of the Lino's method is that it goes with agreement of Elliott waves theory.
Here is what I see and think of it:

Let's take the real chart screenshot above and think of 123 formation (numbered in yellow). What Elliott wave could it correspond to (presuming that we can't scroll back to analyse trends and patterns)?

Case 1: What if it is a correction wave #2?
Look at the sketch:

Wave #2 consists of abc pattern. According to Elliott, we can have either abc or abcxabc patterns. In either way. If our real chart was an abc, we could rely on the rule that wave a = wave c (approximately) and set our minimum Take profit with the rule in mind.

Alright, let's move on.
Case 2: What if on the real chart there was the last Elliott wave #5, after which the trend had changed - the uptrend began?

We would have had the new 12345 Elliott waves.
(Please don't mix up: on the sketches I show the numbers for Elliott wave count, while on the real screenshot above I've numbered the 1-2-3 trading principle, these are not Elliott wave count!

So, returning to the case above, if that was a new uptrend start, then we would be trading on Elliott wave 3, which is never the shortest among Elliott wave 1, 3, and 5. Works for us too! We can take profits according to Lino's strategy without worries.

Let's move further again, shall we?

Case 3: Now, what if on the real chart we simply had a correction, after which a downtrend was going to be resumed?
On the sketch it would correspond to ABC in orange and circled.

Again, we would be fine, since orange wave A is expected to be equal to orange wave C.

Conclusion:

No matter which case it is, we have a winning trade with 123 method.

4. Using RSI trend line for exits. That's a popular method to keep a trade running as long as it can.

To draw a trend line on RSI, we need to connect point 1 and 3 of 1-2-3 method. As long as RSI stays above the trend line (uptrend), we keep the trade open. Make sure you wait for a candle to close and RSI to be fixed, before taking a signal.

Below I took the same screenshot and highlighted an additional 1-2-3 setup and exits with RSI trend line.

Happy trading everyone!

Regards,
Edward

Hi Fraser

Yes, I did try different EMAs, I am still experimenting.

Unfortunately i missed that setup, i mentioned on other post about maybe holding onto position untill you get a reverse setup, if you look at this example that would of been the best exit. Question is when do you know?

I am only a part time trader and this response im getting is really helpfull, thank you all.

Edward any comments on how to improve would greatly be appreciated.

Cheers Lino

Hello Lino-

I see your point re EMA's on the second setup , but it looks like you are using different parameters. Your original rule called for 5 , 10 , and 20. Right ?

I assume you did NOT trade the first setup -Long , because the EMA's were still headed down . Right ?

Did you EXIT the second ( Short ) trade using the RSI Trendline Breakout technique or , are you still experimenting ? Exiting when the jagged , red MACD line turns up/down looks okay , too , but I'm still not sure .

Don't mean to leave you out , Edward ! Any comments on this ??

Fraser

Hi Fraser

I am still playing around with the EMAs settings, but i still think its good to have. Have a look at this example today, you had MACD and RSI signals together with 1-2-3, although EMAs were not crossed, clearly still trending down.

Soon after the first setup you had a short 1-2-3 confirmed by EMAs.

If anyone would like to trade this system live with me on skype just send me an email. I have my email address on previous post. Hope its alright Edward.

Cheers Lino

Lino and Edward,

The 1,2,3 looks great . I looked at the web sites George F. ( Forrest Gump

LOL ) commented on.

VERY interesting , especially Mark Mc Raes 's version of 1,2,3 . Basically a

1,2,3 LONG move sets up as a letter " W' shape and the SHORT sets up as

the letter " M ". They are also a part of the Gartley pattern .

Since MACD IS based on EMA's , why bother with the lagging 5 , 10 , and 20

EMA 's on the price bars at all ?? Also , I find that a better EXIT is waiting

for the MACD line

to turn up/down . What do you think of all this ?

Fraser

Hi George

I have been to those sites, they are very good, thanks!

If you want to get in earlier than at point 2, closer to point 3 you could also use one of the strategies thats on this AWESOME site, its the floor traders system in the advance section.

You need to remember that i use point 3 as a reversal confirmation either after a downtrend or uptrend, thats why i dont get in there, BUT once there is the reversal you can use the floor traders system as soon as it retraces to get in closer to point 3.

With Edwards permission anyone may email me for quicker responses.

[email protected]

Cheers and happy trading.

Edward- How do you use SAR dots ?? Fraser

Hi again, everyone-

Forgot to add Gartley has one big advantage over 1-2-3 It gets you into

the trade AT the equivalent of point 3 for more profits. By the way , only

1,000 copies of Henry Gartley's book were printed , and sold for $ i,500.

each , an enormous sum of money in 1935 .

George F.

I did a lot of Yahoo searching on sun. OK , HERE GOES ----

Go to Paul 's link , forex factory etc .. Nice method , but stick with 1-2-3 ,

and look at the trendline breakout on RSI 21, not 14 .Use it for the exit on

1-2-3.( which by the way , as Paul noticed , pops up all over his charts !! )

Now go to- currency-forextrading.com and scroll to another , similar version

of 1-2-3 by Mark McRae. He uses MACD too , but no RSI or M.A.'s . Some

good chart examples there , including one on 5 min . time frame .

The genesis for 1-2-3 is the Gartley Pattern first discovered in 1935. It

worked then and it works now . It's based on M and W patterns and Elliot

waves .

Full description at -

surefiretradingplans.com/loyalty/gartley

Many years later , Larry Pesavento who is heavily into astro-cycles , harmonics

and astrology applied Fibonacci Ratios to Gartley, which is tedious and

time consuming to calculate . However , software is available which does ALL

the work at -

harmonictrader.com

I hope that some of you , particularly Lino and Edward , go to these sites.

They are interesting and worth the effort.

As for me, I will stick to the simple 1-2-3.

My mother always reminded me " simple things for simple minds , dear "

Yours truly,

Forrest Gump ......... AKA as George F.

Hi Paul

Yes you are correct, for long positions the MACD must cross from negative to positive, for short positions the MACD must cross from positive to negative.

Thank you for the attachment, have you noticed the 1-2-3 setup once the MACD crossed 0 in there examples? I shall have a look at the RSI trendline concept.

Cheers and happy trading.

Lino

Hi,
Shanks for sharing. I've just downloaded a similar strategy with slightly different settings. The entry rule is when MACD crosses 0 and the exit is based on what is called the RSI Trend line:

How_to_Trade_Both_Trend_and_Range_Markets_by_Single_Strategy.pdf

The RSI Trend line concept could be applied here to take advantage of continuous price movement. I like the 1-2-3 signal better since it is direct price action compared to a simple MACD cross.

Paul

Re the MACD rule " must be or just about to cross over " , from the chart examples I assume you mean

for the MACD LINES to cross , not the HIstogram . Correct ?

Paul