Described below is the system which I use in my trading. I have nicknamed this
system "2X" because the goal is to get 2 times the daily range on ES
or NQ. With proper execution of all trades this is quite doable, but that will
mean a minimum of 15 and as many as 30 trades in a day. This is too much for many
people. Really all 2X is doing is trying to get in and out at the optimum point
possible on trend reversals and trend continuations after retracement. It is nothing
more than that, except for the band trades during chop. Failure rate on trades
is very low.
- Bollinger Band - 8 simple, 1.8 std. dev.
- MACD - 7,28,7 - both lines and histogram.
- Stochastic EXP- 7,3,3 (fast) and 21,10,4 (slow) superimposed over each other
- EMA's - 34,50,100, ADX 14
- Trend is important and defined chiefly in these ways --Higher highs &
lows, etc.- MACD - slow stochastic- EMA's. Determination of trend is made
on the higher time frame and is not subject to strict rules. I generally use
slow stochastic as my primary determinant. EMA's will be slower to change
direction and are most useful to gauge strength of longer trends. I find that
reference to a 550T chart is often helpful if in doubt.
- The common chart combination I use is the 55T and 210T although other combinations
are sometimes used based on volatility and range. Entries are usually based
on 210T using 55T to finesse both entries and exits.
- Buy/Sell zones are below 30 or over 70 on fast stochastic.
Primary entry method:
1. Enter in the direction of the trend whenever fast stochastic is in buy or sell
zone. Entry may be made using 55 tic chart to gain better entry point, but this
is not mandatory. Don't enter until evidence of movement in the desired direction
is seen. This entry can also be taken when there is no distinct trend, but almost
never countertrend (except for quick scalps). Continuation reentries do not require
stochastics to be in buy/sell zone as long as slow stochastic and MACD still in
same direction as the trade.
2. Enter on every slingshot (defined below)
3. To enter on apparent reversal of significant trend requires stoch and/or MACD
divergence, or other evidence of reversal such as lower high, higher low, etc.
The longer and stronger the trend, the more clear and convincing the divergence
must be. Exit method: No set rule, but I use price action combined with the indications
from the slow stochastic and macd on the 210 to prevent early exit based on momentary
hesitations or small retracements. I will also not attempt a reversal (countertrend)
trade when ADX is over 40 without first seeing multiple divergences or lower high
(for a short). To a lesser degree I try to consider support and resistance factors,
chart patterns (waves, etc.), time of day, and particularly the price relationship
to BB on the 210Y chart whenever those bands have no pronounced slope. I try never
to risk more than 2 points in a trade on ES or 5 on NQ.
For slow periods and chop: I sometimes play the Bollinger Bands, buying at
the bottom of the band and selling the top. I will do this only when the BB
on 210 tick are lateral (or nearly so) provided there is at least 2 point spread
between the bands. Entries are usually at market or limit and taken when the
band is touched without waiting for reversal to appear. Success ratio is about
3/1 and expectation is to make 1-2 points, while risking no more than 2. Exit
would be when reaches about 2/3 of the way to the opposite band. This kind of
trading is only for narrow range slow periods and should not be done on lower
time frames such as 55 tic.
Other uses of bollinger bands were discussed in a separate presentation, the
transcript of which can be found on the dacharts.com website. The addendum at
the end of the transcript sums the methodology up succinctly.
A slingshot is my name for a pattern that is made by the 7,3,3 stoch combined
with the 21,10,4. It is nothing more than a visual that highlights a tradeable
pullback within a trend. For a long, the fast stoch will dip while the slower
one remains relatively flat. Since I have them on top of each other, this will
look like a slingshot being pulled back. The higher the time frame, the more
powerful the slingshot, but they appear more often on the lower time frames.
Slingshot entries should be taken only with trend or when there is no discernible
trend, but never counter-trend.
NOTE: This is not a mechanical system, but simply a trading method.
Experience with the indicators used and pattern recognition skills are far more
important than trying to devise rules for every contingency. As with any method,
it takes time and serious practice to be used to it's full potential.