Forex trading strategy #8 (EMA breakthrough)

Hello Edward,
This sort of strategy works best in trending markets, of course. Shouldn't we use ADX before entering?

Many thanks

Claude

Hi YAU CHOW LUM,

don't get frustrated too soon. You just need more practice. Soon you'll be able to analyse your stops and take profits and whether they were too close or not. I assume you're placing too close stops at the moment.

The second thing you will learn is that you need to combine certain strategies and methods in order to give yourself a better chance to profit. If there was an easy way just to follow the Stochastic indicator at any time, than one would need no other tools to trade profitably; and as you can see, we have thousands of different indicators, which try to accomplish a task of better than ever trading.

Also you should remember that you won't be able to win every single trade, therefore you should also work on the odds of making your losing trades cost you less than the amount you win when a trade becomes profitable.

In order to understand the moves/process inside each candlestick, you should simply switch to a lower time frame. For example, if you get a trading signal on 1 hour time frame, then take a look at 15 min or even 5 min time frame to understand what happens there: what mini-trends, advances and declines are present. This will help you to make right and more accurate decisions.

Every day you trade, you'll learn new things and become better at trading Forex. Keep practicing!

Regards,
Edward

Hi Edward,

I am new to FX Trading, and currently practicing a Mini Demo Account using one the 30 strategies from your website.

The strategy I refer to is Strategy # 3, (Stochastic High - Low)

By following your notes closely regarding the Entry Rules on BUY and SELL, I am frustrated with the heavy losses from all the BUY and SELL transactions. (Negative profit and Loss from the Account Summary)

From the candlestick's positions, there is indication of profits in the making, but it turned out other wise.

I cannot understand the process of movement behaviour regarding the particular candlestick in question.

I am practising a day trading through scalping approach.

Could it be the entry order and stop loss order I made was too close to the particular candlestick that I intend to make profits from the BUY or SELL positions.

Should you require more information, please send me an e-mail.

Please advise accordingly.

Regards.

YAU CHOW LUM.

You are welcome, Lynn

The second candle just have to produce 5 pips above the previous candle, no need to wait for a second candle to close, enter as soon as those 5 pips are there.

Regards,
Edward

Edward:

Thanks for your reply on December 7. I had another question surrounding the entry candle for this strategy. Should I enter as soon as the "second" makes 5 pips higher than previous one or wait until the the "second" candle has CLOSED 5 pips higher than the previous one?

Hi Lynn,

It could be 2nd, 3rd, 4th etc candle, not necessarily the one that immediately follows after the signaling candle.

Each indicator you add should have a purpose:
If I want to time my entries using price momentum and enter on retracement, I use Stochastic 5, 3, 3.
For example, if I plan to go Long, I want Stochastic lines cross at least below 50 and head up, or if market provides an ideal opportunity - Stochastic lines crossing in oversold zone is an excellent invitation.

When I look to stay in the trade for longer period, I use trend indicators.
15 EMA works well confirming the strength of a trend - as long as price slides alongside moving average, there is no need to worry about open trades.

Now, for exits.
Again same rule applies:

If you want to stay longer in a trade - you would use trend indicators: moving averages (15 or 20), MACD (12, 26, 9), Parabolic SAR(0.2, 0.02) - all pretty simple: price price outside MA - exit, MACD cross, flip over zero line - exit, PAR Sar change - exit.
With trend following indicators you will stay in a trend longer, but at the end you will give away some profits, as those indicators will alert on somewhat late exits.

If you choose to exit earlier, you would go with momentum indicators: Stochastic (5, 3, 3), RSI (5), Momentum, CCI(14 or 30) etc.
These indicators will give early exit signals and you won't lose much of what you've made initially, but then after an early exit you'd need a re-entry method to get back in again under favorable conditions, otherwise the rest of the trend and trading will go without you.

If you opt to add more indicators, then 50 EMA becomes a tool for identifying preferable trading direction - up or down.

Regards,
Edward

Edward:

The entry rules state to "enter with the second candle after it makes 5 pips higher than the previous one." If the second candle after the signal candle DOES NOT make 5 pips higher/lower than the previous candle, do you enter once this happens with the third, fourth or fifth candle? Or do you wait until another signal candle has formed? Also, what have you found to be the best companion indicator with this system and what are the settings for those indicators?
Thanks, Lynn

I Thing better we used Weighted Moving Average (WMA) Period 55 By Close with MACD Default (12,26,9) as filter, we take the breakouts from No.2

As we know WMA 55 can gave us a clear Support & Resistance especial in Bigger Timeframes such H3,H4, & Daily. Ussually in Daily Charts i used WMA 55 By Coles with EMA 20 By Closed.

Regards;

Manus168

I like this system keep it simple like the original ones;

Maybe rather then used EMA 50 By Closed is beter used WMA 55 By Closed (in Metatrader LWMA 55 By Closed)

Entry: after Price Breakout, wait to price retest the Support (if Buy) or Resistance (If Sell) has made by WMA 55 By Closed (ideally made 123 Formation) enter on Breakout from 2 Support/Resistance for aggressive traders, we can enter again after break the all the Ross hook.

Stop Loss at point 3

Alternate Entry after they breakout WMA 55 By closed, look for the candlestick especially non-indecision formation such Shaven Candle (Bull or Bear Marobuzo).

EXIT:

TP: Range Form Pattern 1 - 2 for Sell 1 + 2 for Buy is X. we count from pattern 3 - X (for Sell or 3 + X (for Buy).

Alternative Exit if we saw a LONG Shadow Like Hammer/Hanging Man or Shooting Star, or Doji/Long Ledge Doji with a Longer Tail(shadow) against our direction (meaning the direction we take is exhaust/starting lost of momentum) we close the position immediately.

Regards

Hi George,

You are totally right about exits. Using moving averages for exits often results in giving back large amount of profits. That's why, by the way, exits are not set for this strategy.
Often a signal or indicator that is good for entry, won't be the best for exits. One should use another, separate strategy for exits.
And yes, you'll pay the price if you attempt trading during ranging markets. That is the second reason why exit strategy should be "designed" separately.

My advice would be to look at options of exiting with:

A. Bollinger bands (200, 2) or (100, 2) - whenever price touches BB mid-line or outer bands, tighten your stop, get ready to exit, or exit right away.

B. Mind major support/resistance levels, which come from monthly and weekly charts. Those are identified through observation. Again you may exit or tighten your stop loss.

C. Parabolic SAR (0.02, 0.2) - trail stop alongside its dots, exit immediately if a dot is hit.

D. See if you like this MT4 indicator for exits:
wellxAMA.mq4.
Whenever a dot is changing color you may exit or tighten your stop. Whenever a dot is missing - it is an indication of a sideways moving market ahead, you may want to keep out.

Several options could be used/combined at the same time.
Strive to create an independent exit strategy. Good luck!

Regards,
Edward

Hi Edward,

I like this strategy very much but had a question. I have read that there are other traders that are concerned about continuation markets and the possible losses that could accumulate. As everyone knows, this strategy is good in trending markets as many are but it is in ranging markets that you pay the price. I have attempted many different EMA, WMA and SMA settings but still cannot seem to stop from giving back much the the profit I have earned. I think that a possible solution would be to use daily charts to ease spread fees and longer moving average settings to reduce trading signals. However, I have found regardless of the settings used you still end up giving back too much sooner or later. It seems that what the market gives you it sooner or later takes away.

I was reading that perhaps a good way to avoid this would be to either use a box option hedge married to the desired position or by perhaps using a long-term moving average such a 100 day or more and then entering when the market makes a 40+ day high or low like the Turtles did. However, due to the egregious losses one must suffer in order to capture the trend it makes this entry signal no better than random entry.

I have researched various scenarios and it is weighing heavily in my thoughts like a splinter in my mind! It there any solutions that you could purpose that will be better than random entry and dangerous pyramid models to recover long strings of accumulated losses?

Thanks,

George

Hi Robert,

Normal MACD gives dalayed signals, in other words, MACD is a lagging indicator.
ZeroLag MACD signals are claimed to appear much earlier. Also traders say that it is much easier to spot and trade MACD divergence with ZeroLag MACD indicator.

Regards,
Edward

This might sounds like a silly question but what is the difference between the ZeroLag MACD and the normal MACD? Are they interchangeable?

Robert

Great addition, thank you!
I'm adding ZeroLag MACD for traders to download.

Regards,
Edward

Greetings!

I think I found a consistent exit stategy for this system...

1st, use 62 EMA...

Add Zerolag MACD indicator set to 8,13,9...

Exit when signal line crosses 0.00 up or down depending on the trend of the 62 EMA...

I'm still playing with it, but it looks like it has potential...

Thanks,Edward for this site!