EDGE TRADING SYSTEM
Recognition entry pattern.
Trade in the direction of the tide, entering when a wave goes against it.
Trend Following Indicators - EMA's, MA's, MACD, Directional System:
Good: have built in inertia that allows them to lock onto a trend and ride it.
Bad: same inertia causes them to lag at turning points.
Monthly 21 EMA - is a fantastic indicator as to whether we are in an up or down trend, also great support to buy the
dips on. Also excellent on the daily chart (Elder prefers the 22 EMA).
Daily 200 MA - one of the most important, tells you if in up or down trend, prices mean, look at its slop, turn at end,
support & resistance, Golden Cross (50 crossing up above it) is very bullish, Death Cross (50 crossing
below it) is very bearish.
Daily EMA Ribbon - 21, 25, 30, 35, 40, 45, 50, 55 great for showing a cloud of support or resistance, hard for price to
Daily Classic - 21, 55, 100 EMA's & 200 MA
Weekly Elder - 26 EMA is the best directional indicator. Trade only in its direction, or trade in & out of it (buying price when falls near to it, selling when is high above it).
Buying on the EMA is value - buying when price is on sale. Buying high above the EMA is a fool's game - need a greater fool to buy off you!
If MA's/EMA's are rising means crowd optimistic - bullish = buy.
If MA's/EMA's are falling means crowd pessimistic - bearish = sell.
If they are starting to turn up, buy, starting to turn down, sell - for trading.
Don't trade a horizontal MA/EMA, instead wait till the crowd know which way they are going.
Use the higher time frame MA/EMA to give you the direction of your trade, then the next down (your favourite) to time entry - get both aligned = great signal. Can use 3 windows.
Best indicator for identifying trends.
Turning Point Indicators (Oscillators) - RSI, Stochastic RSI, Force Index, Rate of Change:
Good: work brilliantly in trading ranges.
Bad: in trends they give premature sell or buy signals.
Divergence is the greatest indicator - especially for doulbe tops/bottoms. RSI seems to be the most reliable divergence, volume too for bull traps.
Bollinger Bands or Straight Envelope - adjust envelopes to fit 95% of price (25%):
Good: Great in range bound markets.
Bad: Not good in strong trends.
Bollinger Bands (widen with volatility): Great for showing you a price squeeze. Also when price pokes out of them, a quick trade.
Straight Envelope (no widening): Great for sell signals in an up-trend (when hits or pokes out of top), buy back in when comes to middle or just below (seldom hits bottom in an up-trend).
Envelopes are vital for telling you if a coin has enough width to make money trading it or not! The reason day trading doesn't work is there is not enough envelope widith for profit! So check its evenlope before trading a new coin.
Envelopes are the best indicator for when to take profits.
MACD (a reversal indicator):
MACD Lines give entry signals (get your exit signals from other places).
Fast line crosses up = buy, fast line crosses down = sell.
MACD Histogram: you look at the last two bars and their slope to tell you whether bullish or bearish. The histogram is just the space between the 2 lines. When starting to slope up = buy.
MACD Histogram Divergence: extremely powerful, happens only a couple of times a year! Great for letting you know if the double bottom - second bottom is going bounce. When seen it means price will go up for weeks or months. As it is so powerful, if the Histogram Divergence does not work, literally make the stop a 'stop and reverse', as it means the opposite is very powerful to screw a divergence.
Best indicator for identifying reversals.
Stochastic RSI (no go areas):
The stochastic helps you do the right thing - buy low sell high! Do not buy when it's above its top line! Do not buy when its below its bottom line! This tells you NO just went you are tempted to FOMOing or FUDing.
It is too late to buy when it's above the top line - stops you chasing a trend.
It is too late to sell when it's below the bottom line.
Buy when the 21 EMA is slanting up and the Stochastic is below bottom line (personally: when starting to turn up too).
Sell when 21 EMA is slanting down and Stochastic is above its top line (personally: when also starting to turn down too).
Divergence is the strongest Stochastic indicator.
In a strong up or down trend it will give premature buy or sell signals.
Best indicator for 'no go zone' - stops you making mistakes.
My Trading System:
Entry Buy Signal:
1. 21 Day EMA slanting up & 21 Weekly EMA is slanting up.
2. Stochastic RSI is below bottom line and starting to turn up - bullish divergence - double bottom.
3. Price back to middle of envelope, not at top.
4. Last two bars of MACD rising - blue line crossing up - bullish divergence.
5. Triangle, descending wedge (price squeeze), channels, bull flags, bear flags, bull/bear traps, consolidation.
6. Major support - price at support and about to bounce off it - trend line - 50, 100, 200 - Fib level.
7. RSI at low levels - 30 brilliant rare time to buy, 40 still good - bullish divergence (strongest buy signal).
Exit Sell Signal:
1. 21 Day EMA started to turn down. Weekly 21 EMA starting to turn down.
2. Stochastic RSI above top line and starting to turn down breaking into line - bearish divergence - double top.
3. Price touching or very close to top of envelope.
4. Last two bars of MACD slanting down - blue line crossing down.
5. Price hit major resistance line - trend line - horizontal line - 50, 100, 200 MA - Fib level.
6. RSI above 70 or close - bearish divergence - double top.
We first look at the weekly chart to find the trend (up, down, sideways) using trend following indicators only (they rise when prices rise).
If the EMA's are sloping up and the MACD Histogram's last two bars are sloping up too (double as strong), your strategic decision is to go long, vice versa you go short. If EMA's and MACD Histogram are flat you stand aside!
1. 21 & 26 EMA slope.
2. MACD Histogram last two bar slope. Weekly MACD Histogram price divergence is strongest signal ever (overpowers weekly EMA's)!
3. Can also use Trend Lines.
Now you know your strategic trading direction you look at the daily chart's Oscillators (turning point indicators) for tactical entry and exit points.
1. Stochastic RSI - when gives a sell signal can take profit, but not use it to short (as in an up-trend).
3. Envelope (25% setting).
4. MACD Histogram - when goes below zero is buy signal.
4 Hour Chart:
Now you know your trading direction, and when to enter, you finally use the 4 hour chart to fine tune entry using Oscillators. You want the daily Oscillators to bottom, and finally for the 4 hours to bottom - Buy!
1. Stochastic RSI.
3. Envelope (6% setting).
You must put a stop in immediately on entering a trade and move it up as soon as price moves up. Only losers say "I'll give it a little more room" - you already gave it enough room by entering it! You were more rational more rational at the time you placed it than you are now! You may walk the tight rope a 100 times without a safety net, but the very first fall will cripple you. No amount of brains will help you if you abandon stops. A trader who abandons stops will eventually take the mother of all losses! Most trading books will tell you to place a stop below the latest low when long, or above the latest high when short. Professionals gun for these bunched up stops with false breakouts, allowing them to buy stock cheap or sell expensive.
1. Bring stop up to breakeven as soon as safely can (pros never let a profit turn into a loss), keep trailing it up.
2. Place stops outside of market ranges.
3. A stop should never be more than 2% of capital (reduce bet size if want longer stop).
1. Daily: when hit top of envelope.
2. Daily: when Stochastic RSI goes over top line.
3. Daily: could just tighten your stop when price goes to either of above and open a new trade entry when price comes back down to EMA's - building a position at start of a bull trend.
4. When the weekly EMA's turn flat.
1. Look at 4 hour and place a buy limit order at a pull back to a major support, EMA, bottom of Stochastic RSI.
2. You try to enter at the lowest price possible for that day, if you can get under 50% that is good (from the high and
low of the day - do the same with exiting).
1. You need high volatility & liquidity to trade, especially to day trade. Volatility = high average daily range, big gap between high and low of each day. Liquidity = lots of daily volume - big assets.
2. Day trade: with a high envelope stock, 1hr, 15min, 3min charts, do same exact strategy as swing trading: enter in vicinity of EMA, exit at top of envelope on 15min chart etc. Only trade a couple of times throughout the day taking 30% of the days move from high to low. Watch the open first 30 mins of a stocks Opening Range, if it is wide (80% of yesterday's full range) those ranges are likely to be the high and low of the day, hence sell at top and buy at bottom - especially fakeouts on the S&P where pros stop hunt and sell the top of the fakeout and exit at middle of opening range. The last half hour is also volatile and need to be watched! Pros go for lunch in middle of day so S&P is directionless and choppy from 12pm to 1:30pm. The day is a U shaped peaks of volume. When the Opening Range is narrow, go in the direction of the breakout. Pros buy at lows and short highs then unwind their positions over the day. Pros trade ranges and not trends & breakouts like amateurs. Create your own opening 30mins chart on paper, and trade it. S&P is the best to trade against false breakouts (pros knocking out stops and getting in at top of spike), watch oscillators to time false breakouts running out of steam.
Opening Range (first 15 to 30 minute swings).
Highs & Lows of Day (tops and bottoms forming).
Previous Days High & Low.
Just trade against that first opening swing direction.
Impulse System Indicator:
A momentum (impulse fast moves) indicator. It catches the middle of a fast move up/down.
EMA's slope captures the inertia. MACD Histogram's slope catches the momentum.
Enter when both EMA and MACD Histogram are in gear.
Exit when they fall out of gear.
Weekly: 26 EMA slope up and MACD Histogram's last two bars up.
Daily: 13 EMA started to slope up and MACD Histogram's last two bars started going up = Buy!
Money Management Rules:
1. You only ever risk a maximum (you can risk less) of 2% of your total trading capital - which is the total of your
capital and that in trades were the stop has been moved up. So as your total capital increases, so does your 2%
$'s worth of bet size increase. Also if you are losing, your 2% $'s worth bet size gets automatically reduced. Very
clever how it reduces bet sizes automatically as you go through losing steaks and increases automatically as you
go through winning streaks! You have to include your fee, commission, slippage etc within the 2%. Do not take a
trade if the envelope does not give you the R multiple.
2. You have to completely stop trading for the rest of the month if your account total capital losses hit 6% below last
months capital total. The minute this happens you would automatically close all open positions. You do not
include any profits from this month. So if you have put 3x 2% trades on, you cannot place any more trades till one
of those open trades stops moves up 2%, then you are free to place another 2% trade etc. So your exposure is
never ever more than 6% of last month's capital close. Of course if your trades keep winning/moving stops up to
breakeven, you can keep placing more 2% trades. This system is so clever as it immediately stops a losing streak
and mood - and gives you to the ned of the month to re-group. It also automatically lets you enlarge infinitely as
you keep winning opening more trades. Then if your account grew, next month's 6% $ value will be greater!