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How To Use Parabolic SAR Strategy Effectively

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Parabolic SAR Strategy
How to use parabolic sar strategy effectively, best parabolic strategy in trading

Trading Indicators such the parabolic SAR strategy indicator are a great way to better analyze market movements and supplement your trading methodology. One example, and which is relatively easy to use indicator, is this Parabolic SAR Strategy Indicator.

In this video, we will tackle how to effectively use this indicator order to maximize your trades.

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Parabolic SAR Strategy

Welcome to this video on how to use Parabolic SRA Strategy effectively. This is an indicator that a lot of people really like. Its concept is one of the most simple and easy to follow indicator. SAR stands for stop and reverse. Some people consider it a trend following indicator. So, what we’re looking for here is this – as long as these dots are above price, then we’re short. I’m going to simplify things here, maybe oversimplified. Then when the dots go below price levels, then we go long, a bullish signal. The other thing that’s kind of nice about this is that it creates a trend following indicator. The parabolic SAR strategy is to go short when dots are above it and long when dots are below the price.

Then, it also serves as a trailing stop. So, you just follow this along. As long as the price dots stay below the candlesticks, then stay long. Now see here, of course, nothing’s perfect and everything has its own little parameters. Whatever perfect parameters you think you’re going to come up with will never be perfect for every situation. So, here we get one that goes above and comes back down below within one bar. That would have stopped and reversed you out. That’s one of my issues with the indicator; I don’t like the term stop and reverse because it implies that trends that go up and go down – that’s not typically how trends actually go. So, to stop and reverse means that you stop out of your long trade and you go short the downtrend.

How to Use Parabolic SAR Effectively

But really what seems to happen most of the time in markets is, but more often, we get enough trend and then the market kind of goes sideways for a little while. So, reversal trades usually have a worse than 50 slash 50 win-loss ratio narrative. After this, we go sideways for a while and say, okay, well then I’m to go with short. Not necessarily, sometimes it’ll continue into an uptrend. So, I don’t like this whole concept of SAR stop and reverse and calling it that – sorry to the classic technical analysis fanatics. But that’s my personal opinion, feel free to disagree with me. It’s a free country, a free world. Well, the whole world’s not free, unfortunately. But anyway, you have my permission to disagree with me, type your comments in the comments below if you do, and I’m a big boy, I can deal with that.

Then let’s take this off of here and see what happens. You can see now that we run into some problems – let me just narrow this down a little bit, let’s change our scaling. So, we had the first example I showed you looked pretty good, right? So it kept us into that trend – let me go back there first a little bit and just show you that again. That would have worked out real nice. So, just like most trend trading techniques, they all look great; a lot of indicators will look fantastic as long as you’re on a trend, and those are the kinds of examples that they’ll put in their textbooks and their videos and all that kind of stuff. That’s beautiful except for one problem – the markets don’t trend most of the time. So, I don’t know what the exact steps are anymore.

Best Parabolic SAR Strategy

They vary. I’ve heard, well 30 percent, I think that’s aggressive. I’ve heard 20 percent. Lately, I’ve heard markets only trend about 15 percent. I do believe that the markets are trending less and less frequently. And, by the way, when this indicator was created, it was actually before the time of the computer age. So, let’s also be clear about that. When the computer age came in, then market started trading very differently; price patterns changed differently or started forming differently. So, if you trade methodologies based on techniques that were developed before modern computer technology entered the markets, you’ve got a big problem, it’s not going to work for you. Anyway, what would have happened here is what is typical.

So, I showed this one little dot here and then it goes back down – we are now supposed to be in an uptrend. And then the dots go back above price bars and we’re supposed to be in a downtrend. But the market didn’t really go down, did it? Then the price comes below the price bars, so now we’re supposed to go up – well it didn’t go up that much. And then the indicator goes above the bars. But the market actually ends up going up while the parabolic SAR is above it. This is the problem. You get this kind of stuff happening when you’re in a non-trending market; by the way, the definition of trend is not direction. The definition of trend is not higher highs and higher lows.

Parabolic SAR Trading System

Anybody’s told you that those are wrong definitions and they will mess up your trading because a trend is defined by Webster’s dictionary as the extended direction of, well, anything. So, extended general direction means a long-term move. These are short-term moves in there for none of these are trends, and that’s why I personally and heretically do not consider the parabolic SAR to be a trend indicator. It does not indicate long-term moves as demonstrated here. And you will see this, you might say, well, that’s just one example – fine, pull up your own charts and you’re going to see plenty of examples like this. So, in my mind, it is not a trend indicator at all. Can it be a decent trailing stop at times in trail, in trending markets? Yes, it can be. Okay. I still don’t prefer it as a trailing stop. Why,

because, for example, it starts too far away from the market. So, here is our first signal on that bar right there; look how far away it is. Sure it tightens up. But my initial protective stop is too far away – I don’t want it to be that far away initially. Anyway, it can be used though. But the point is it can’t be used alone and in fact, no indicator, and I’m not trashing the parabolic SAR. No one indicator will make you money, not this one, not stochastics, not MACD, not RSI, and not CCI – no indicator makes you money. They’re indicators. And so what’s an indicator? Well, the answers and the question – they indicate! What they don’t do is make you money directly.

ADX Parabolic SAR Strategy

Otherwise, we would call them moneymakers. So, can it be helpful in your trading? And the answer is yes, it can be helpful as part of a complete trading methodology. As I’ve implied here, it can work pretty darn well in those we’ve actually seen it can work pretty good for a trailing stop, especially after the market starts moving a bit – I don’t like its initial protective stop and there’s the market starts moving a bit. Yes, it can be a pretty decent trailing stop but only in trending market and it does not define a trending market. Therefore, one of the things that we will have to add to it is a trend indicator of some sort. You can use whatever your favorite trend indicator. But, for today’s purposes, we’ll just use the ADX. All right, so let’s pull up the ADX.

So now, I’ve added a 14-period ADX to my charts here and in ninja trader they call DM; that actually adds DM plus and DM minus, and I just want to keep things very simple for you today. And I put it at a threshold of 20. So, this black horizontal line here is set at 20. Basically, when Adx gets above 20, then it’s considered a strong trend. Now we’re adding the two together. We’re not going to depend on Parabolic SAR for a trend, we will depend on ADX in the example, and here is the spot where it goes above. Now, you’ll notice that it doesn’t normally nail specific swing highs and swing lows, and once in a while it will but periodically or typically, it won’t. Most trend indicators are by definition lagging indicators and there’s a reason for that.

Parabolic SAR Indicator

The definition of a trend is the extended general direction of the market. Therefore, you can’t have a trend indicated until there’s enough data to establish that you’re in an extended general direction, and, therefore, it is lagging mathematically. But if you get into a trend like this, so then it is. So Parabolic SAR, there is the input that I’m using for that and for the ADX – you can see ADX here, and I’ve got the positive and negative blacked out. I don’t want to see those right now.

But it’s a period of 14, right? You can experiment with different periods, you can experiment with different threshold lines. I’ve got it at 20 – different people use different periods. What we do here is we say now we’ve got a trend established at this point and we will use this as our trailing stop; our Parabolic SAR as our trailing stop. Not going to use it as a stop and reverse necessarily. Now what you’ll also notice is that the ADX starts coming down here and that’s also a kind of a little signal that maybe we have put in a high, so this whole situation here where Parabolic SAR went above the bars, then below the bars then above bars real quick – we also see a confirmation of that here on the ADX where it’s a diverging in starting to come down.

Parabolic SAR Settings

So, it just comes down. Now, the one thing I don’t like about the ADX is that it doesn’t indicate a trend after you got to the top coming back down, you’ve got to wait for it to reset below the threshold line, in this case, 20. So, this does not indicate a downtrend just because it’s coming down and therefore you got to wait this period all this period to the indicators really not telling you anything other than maybe indicating that it’s good to get out of your long trade, but now you got to wait for it to reset before you get another trade signal.

A lot of time can go by, as you see this is a daily chart and you know, a couple of months go by. Then, by the way, just to show you what we showed before, all of this noise here that we looked, if we look at that noise and you say, wait a minute up, gave us a long signal here, short signal here, etc., that whole time ADX was, first of all, declining back down to the zero line and then it stayed below the zero line indicating that there is no trend.

Rubber Band Trade Strategy

Therefore, we don’t want to use the parabolic SAR in that situation. So, this is where you combine different types of indicators for different purposes in order to develop a successful trading methodology. So if you liked this video, if you found it helpful, please understand, it’s free. But, if you got some value from it, you actually have a moral obligation to pay it forward and click the beautiful share button below. In fact, sharing the video is really the best way that you can pay me back for giving you all the free tutorials that I’ve given you, now over a hundred free tutorials. Also, if you’re watching this on youtube, go ahead and click the thumbs up icon.

That’s really easy and I love your comments, so please leave your comment because that actually encourages me to create more free tutorials for you. I’m going to give you also one of my favorite trade strategies called the rubber band trade, which has a very high wind loss ratio. It’s a simple trade. I’ll teach it to you in about 26 short minutes on a video that I have for you also absolutely free.

So, get my rubber band trade strategy for free by clicking on the image in the top right corner of this video or in the description below the video. If you’re not watching on youtube, then there’s probably a link below or on the Optin form on the side, whichever one of those ways you choose to request the video, I will personally email the video to you with the rubber band trade strategy.

GET MY FREE MARKET ENTRY TIMING INDICATOR

BTW, if you’re interested in the indicator that I use personally for very precise entries and exits. I’m happy to share that with you. Just send me an email at Barry@TopDogTrading.com, and I’ll show you how to get access to that indicator.

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How To Choose Stocks For Swing Trading

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Swing Trading
Choosing Stocks For Swing Trading Best Practices

The goal of trading of all types and sorts (i.e Swing Trading, Day Trading, etc.) is to, basically, maximize revenue while minimizing risk. Most of the time, however, traders are caught up with investing in risky stocks that could potentially lead them to loses due to, of course, lack of information and knowledge in dealing with market cycles.

In this video, we will tackle the ways on how to choose stocks for Swing Trading that would maximize your trading.

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Swing Trading

I am going to share with you three primary ways to choose stocks, to pick stocks for swing trading; being defined as basically short-term trading but not day trading. So we are definitely holding overnight, often two, three days, sometimes even a week or more, but not getting into long-term investing. So here are the three different approaches that are most commonly used for choosing stocks for swing trading. Number one is just choosing a few stocks that you really like. This is very popular with some people where they say, you know what, I’m going to just really learn maybe three to five different stocks, and those are the only ones going to trade. And one of the things you’ll often hear them say is I’m going to get to learn their personalities and that way I’ll get used to them and how they move.

Because with a lot of repetition of trading, I will understand those particular stocks, their personalities in air quotes. I can’t say that it isn’t a possibility to do because I’ve seen it done, but my problem with it primarily is that a lot of markets, a lot of stocks, especially equities, they move in cycles like all markets move in some type of cycle. So, for example, they’ll trend and then they’ll go into a non-trending cycle which is going to consolidation and be directionless for a while or they’ll go through a high volatility period and then a low volatility period. So if you’re just trading stocks that are part of a major index such as the Dow or the S&P 500, the Nasdaq, quite often they’re going to be moving in a similar way. Therefore I find that I just don’t get as many opportunities that way.

Swing Trading Strategies

Then number two is one that I do engage in and that is ‘having a basket of non-correlated markets’. So, the key to this is that the markets are non-correlated so you can have even bring-up a long list here. Here’s actually the list that I will send you and I’ll send it to you in text format if you’re interested in it for free, no opt-in or anything, just request it and I’ll include it in a text format so you can cut and paste because the symbols may be different than on your targeting platform. And I also include what that symbol means. So if you have trouble finding the exact symbol, then you can at least know what it means and find out from your data provider what that symbol is.

So see, we’ve got cash indexes. These are our basic indexes here. Then we’ll get some leveraged ones and then I go down to currencies. Well, those are futures there, but today, since we’re talking about stocks, you can trade currencies that are exchange-traded funds and so here they are all right. And then we got our heavily traded ones or are more lately traded ones and then we go to other countries and these are again, basically, most of them are iShares. And we can trade, well what’s going on in different countries like Australia, Canada, Sweden, Germany, Hong Kong, the UK, when markets might be taking off another one in another country depending on its economy and its stock market may not be doing a very well.

Swing Trading Signals

These are primarily different sectors and industries. So you’ll see here we’ve got biotech, agriculture, Base metals and we’ve got China mixed in their gold. I always throw in Google healthcare, internet broker-dealers, et cetera, and that’s what this is – to find different sectors and industry. So the bottom line with this approach, the logic of this approach is now, you’ve got a lot more markets to watch, and some are correlated but a lot of them are not. You’re going to get more opportunities for trading because while one market might be in a non-trending cycle, then there’s another one that is trending like crazy or one that’s very low volatility and just not really moving and another one is moving and just going like gangbusters and blown the doors off the market.

So the idea here is, I’ve often quoted where it says, there’s always a bull market somewhere and a bear market somewhere, or say Jim Cramer even says there’s a raging bull market somewhere and there’s always a raging bear market somewhere. So you look through these various non-correlated market. This is something I always do. I always have this watch list up and when I’m swing trading, I personally, I do day trading. So I don’t really do any swing trading during the day. I just look at the end of the day after my day trading is done, I’ll take a break, then I’ll usually get some lunch and maybe it could work out and then I come back and I’ll look at the daily charts and I’ll compare these various markets. So it’s a little bit manual.

Swing Trading Methods

The downside of this is that you got a lot to look at. Of course, you don’t have to look at all of these markets. You can shorten this list. But let me show you one that’s a little trickier. So what I do is I have put the various markets than looking at it. It’s called the market analyzer here, but the more traditional term for it is a quote sheet. And let me pull this down for you here a little bit, here you go so you can see it. But that’s just the Ninja trader term for the market analyzer. Anyway, it’s kind of like a quote window and various trading platforms have various functionalities for these. But one cool thing is I’m going to have to squeeze this over so it’s going to look really weird now, scrunched up.

So let’s say that I want to go through this list and I want to see the charts for them. So a lot of trading platforms have this by the way, not just Ninja trader where you can link the windows together. And so you’ll click on here and see all these different colors. I’ve got them red. That means if I go over here and let’s say I want to look at Disney now. It’s Ebay over here, right? So I say I don’t wanna look at Ebay. When I look at Disney I just click on that and it brings up Disney and that’s because I have the two windows linked together with the same color. Thus, I can actually go right down the list and just check them one by one and it pulls them up one by one, as you can see that’s actually an apple.

Swing Trading Guide

And then just click all the way down through them. And that helps me save a lot of time rather than manually typing in each symbol. Another thing I’ll point out here too is, again, some trading platforms have this and some don’t. But on ninja trader they’ve got a nice thing with market analyzer here where you can create these columns. And you can actually put indicators in there so that I don’t have to go through the whole list now and again, that’s a time-saver. So I can say, OK, a trend. Well, I’ve got the way I measure trend and what is the trend, is it up or down? If I’m looking for up trends and what wave are we? So, here we’re in, which wave I’m in, I’ve got all these other parameters in there for that I use specifically for my trading methodology.

So then I can just look at certain things to know the words and I don’t have to look at every single one. I know I’ve got my cycles in there. Let me pull this back for you. Cycles are a big issue for me because cycles tell you when to get in, when to get out, and the optimal time so you don’t get stopped out. So this is very important. And now the cycle indicator here, it’s an up and I’m looking for hookups. So again that’s more than I can explain in this video. It’s not really on topic, but if you’d like my cycle indicator, I do have a webinar where I give that away for free. The cycle indicator not only works on Ninja trader, it actually will work on any charting platform I’ve ever seen.

Swing Trading Analysis

Anyway, don’t want to believe at that point again. So last one way. This video is lasting a long time, but that’s OK. Want to share a lot of good stuff with you. So the third option is to scan. We’ve kind of gone into half of the scanning here with this, right? So this is a little bit of scanning but it’s not really, I’m technically scanning. It’s kind of a hybrid between having our basket of stocks or our watch list and putting certain indicators in there.

But then you can get even more specific with scanning. So let’s talk about that real quick. The third type of choosing stocks for swing trading, we’re going to use a scanner or sometimes it is called a screener. And what’s cool about this is you can put in very, very specific parameters. Now, this is just a general one here – by the way, this is a thinkorswim, so all this is just like a simple, not chewing on complex number, but the basic thing I’m looking for is right here. So we’re just looking at this, and this is the primary thing I’m looking for. We’re only looking for stocks where the price is above the upper band of the Bollinger band. So it says that the upper band is less than the close. That means that the market closed above the upper band of the Bollinger bands.

Swing Trading Technical Analysis

So it’s showing a lot of strength to the upside. Now, I also included a few other parameters here and different timeframes as well. That’s the cool thing about this is that, uh, you can put this on different timeframes and not just on one timeframe. So this is a pretty good one. I’ve got out of the scans that I like better, but the point is when you’re using a screening or scanning, then you can really narrow down. So let’s say, for example, that you have certain trade setups that have a list of rules, you can enter all those rules into your screener or your scanner and only bring up a stocks that meet those rules. So while, let me just bring up another one here. And the Nice thing about this is it’s pretty fast. So what did we do there?

This one’s good. So let’s see, this is where momentum is. Now, I got to click this scan button here and as you can see, I’ve got more parameters at this time. And so this one is where the market is, has a bearish momentum on three different timeframes all at the same time. So that is what’s valuable about this is that we’re using multiple timeframes in that the. And so we got one, two, three, four, five, about 10 of them that showed up. So it scans through like 10,000 markets or you can start with whatever, you know, you can say, well, you don’t want to have all stocks. Maybe you want to do what I have. All that’s optional because I don’t, I like to read the options and it goes through all 10,000 and it just gives you a little list.

Swing Trading Tools

Then you’d pop these up and we can look at them on the charts as well. So, the first thing I would do, if you want to do this, it’s probably the shortcut up, the fast way to find good setups and based on whatever trading method you’re using, whatever rules for your trade setups. And I would first go to your trading platform software provider, whether it’s thinkorswim more trade station has this function available to and some others. So some do and some don’t. Finviz, I’ve heard it is pretty good. I’ve never used it. A stockcharts.com, again, it’s a good platform but I’ve never used it for scanning and uh, the one that I would use.

And then I often do use is called stockfetcher.com and that’s totally separate. So even if you don’t have it on your trading platform, that’s like an $8 a month or something, the last time I looked, it’ll look at parameters on multiple timeframes concurrently. Also, it calculates everything really, really fast and you can put in all kinds of parameters so flexible. By the way, I have no financial interest in any of these, so just look them up, Google them, go there, not an affiliate link or anything that I’m giving you here. So I’m going, OK, so that’s a little longer video today, but those are the three primary ways that I have found that I’ve heard other people using for choosing stocks for swing trading.

Rubber Band Trade Strategy

So if you got value from this video, please understand that it’s absolutely free, it’s my gift to you.  But if you did get value from it, then I invite you to pay it forward. Why? Because it’s good Karma. Share good things with your friends, right? Go ahead and click the share button below and spread the word. That’s your way of paying me back. The higher it goes up through the ranks when you share it and more people will see the video. Also, if you’re watching this on youtube, click the thumbs up icon and leave a comment. I love your comments more than anything actually. That really encouraged me just on a personal level to create more free tutorials for you. I do one of these every week.

Also, I have a gift for you today and it is one of my favorite trade strategies. This is an actual trade strategy with entries and exits and stops and all that stuff. You get all the rules for it and you will get that absolutely free. And it has a very, very high win-loss ratio. And that’s the simple trade. I also have a video, it takes 26 minutes to show it to you. It’s called the rubber band trade strategy, and you can get that by clicking on the image on the top right corner of this video or in the description below the video. And if you’re not watching it on youtube, then there’s probably a link below or an opt-in form on the side anyway. Once you choose one of those options, I will personally email the video to you with the rubber band trade strategy.

GET MY FREE MARKET ENTRY TIMING INDICATOR

BTW, if you’re interested in the indicator that I use personally for very precise entries and exits. I’m happy to share that with you. Just send me an email at Barry@TopDogTrading.com, and I’ll show you how to get access to that indicator.

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Trailing Stop Forex Strategy

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Trailing Stop Forex Strategy
Trailing Stop Strategy

Protecting against losses with a trailing stop Forex strategy is absolutely critical for successful trading. Traders tend to focus on how to make money, which is great. Equally important is to protect against losses.

In this video, you’ll get a trading stop strategy that will help you “keep your losses small and let your winners run.”

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Trailing Stop Forex Strategy

Welcome to this video on trailing stop forex positions where we’re going to analyze once you get into a trade, where you should place your trailing stop – your initial stop, protective stop whatever you want to call it. With my trading method, when the 50 MA start angling up, I consider that we are in a potential uptrend. That’s an uptrend indication.

By the way, all these are indicators and indicators do what they promise. I mean the answer’s in the question, what do they do? They indicate! No indicator is a money maker. Therefore, you cannot rely on any one indicator to make you money. It’s a piece of evidence is what it really is. Right now, what I would do in a situation like this is to potentially look for a first wave low. I count waves differently than they do an Elliot wave.

If you want my cycle indicator and how I measure these waves and these cycles and so forth, happy to give that to you for free and send me an email at barry@topdogtrading.com. I am also doing webinars once or twice a week where I give away that indicator absolutely free. It works on any trading platform and you get a tutorial with it on how to trade it and you can take it and integrate it to whatever training method you’re using, if you’d like. No charge for that.

Trailing Stop Forex

Cycles are like the respiration of the market, the inhale, the exhale. Markets sometimes ll go straight up or straight down, especially based on news and even gossip or rumors sometimes. Price structure has everything to do with where we place our stops, our initial protective stop as well as our trailing stops. Number one is your protective stop goes where you’re wrong.

Forex Trailing Stop Strategy

That’s the general rule. You might want to write this down – stops go where you’re wrong. What do I mean by that? There’s always a reason that we take a trade. So, whatever the reason is in your methodology, then if that reason for entering the trade no longer exists, then your trade should no longer exist. Your protective stop or your trending stop for that matter should always be placed at a position on the chart where the structure for the reason of you entering the trade has been broken, has been violated. So that to me is the basic rule where you place your stops.

You’ve heard the saying the trend is your friend until the end, right? And some people think the lesson from that is just a trade with the trend. Again, that’s a half-truth. In fact, The second half of the sentence is the most important half of the sentence – until the end.

What that’s really instructing us to do is trade early in a new trend. The longer the trend goes, the less likely it is to continue. Therefore, I’m always looking for the first cycle low after the confirmation of an uptrend. As long as that trend is going up, we’re good.

 

How to Use Trailing Stops

No one can predict what the market’s going to do all the time. That’s impossible. No one’s ever done it. Nobody ever will do it. I don’t care what you hear. And that’s why we don’t predict the market. I hate when people say, how do we predict what the market’s going to do? No one has a crystal ball. This is all about mathematical probabilities. And that’s it, which is exactly why we have to keep our stops in our protective stops and our trailing stops. I would just keep my stop a below these wave lows. And then once I get up here to weigh five, what I would do is look for a momentum shift.

Trailing Stop Explained

I don’t really want it to break the low here, right? This is our structure that I was talking about and so that’s my protective stop. I don’t want the market to break the structure for the reason that I got into the trade, it gets close but it doesn’t provide support and we’re golden. So this will be my initial protective stop right here. The reason I got into the trade is, remember the place your stops go, as long as the reason continues to exist for getting into the trade, keep your trade on, we want to keep our losses small. But we want to let our winners run as well. You don’t want to get out too soon and we allow for the market to go from low volatility, which is what’s happening here.

 

Rubber Band Trade Strategy

I’m not asking for any favors, but if you found this video or my channel as a whole valuable, then please go ahead and click the share button. That’s actually the best thing you can do to move the videos up in the ratings so that other people can see them and get value from videos on my channel. Not only this one but all of them. Also, click on the thumbs up icon. Love it when you leave. Comments that really encourages me to create more free tutorials for you and I’ve got a Freebie for you today, a big freebie and that is my rubber band trade, so I’m going to give you an actual trade set up with all the rules, all the conditions, everything absolutely free and let you try it out on me.

So do it with paper money first obviously, but it’s called the rubber band trade. I will send you a video for it. It’s a 26 short minutes or it’s a really simple trade, but it has a very high win loss ratio. And you can get that by simply clicking on the image in the top right corner of this video or in the description below the video. Or, if you’re not watching this on YouTube, then there’s probably a link below or an opt-in form on the site or somewhere. Anyway, why don’t you do that? I will personally email the video to you with the rubber band trade strategy,

GET MY FREE MARKET ENTRY TIMING INDICATOR

BTW, if you’re interested in the indicator that I use personally for very precise entries and exits. I’m happy to share that with you. Just send me an email at Barry@TopDogTrading.com, and I’ll show you how to get access to that indicator.

What did you think of this tutorial on Trailing Stop Forex Strategy? Enter your answer in the COMMENTS section at the bottom of this page.

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Scanning for High Volatility Trading Strategies: The Counterintuitive Way

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Volatility Trading
Scanning for High Volatility Trading: The Counterintuitive Way

Volatility trading poses implications that can either make you money or lose that same opportunity. Due to the high risk associated with trading in volatile markets, traders should take into account the best strategies when trading in such markets.

To better predict contractions and consolidations in the market and when to enter and exit a trade, it is critical to study the strategies that would maximize your trade.

Was this video on Scanning for High Volatility Trading Strategies: The Counterintuitive Way helpful to you? Leave a message in the COMMENTS section at the bottom of this page. 

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Volatility Trading Strategies

Let’s begin with the problem and then give you the solution. One of the problems with volatility trading is that a lot of people will use this for scanning for markets, whether it’s the stock market, futures, forex, and they are generally looking to scan for high volatility trading opportunities. So their logic in that is, well, I want to trade a market that’s really moving, right? And it makes sense. There’s a logic to that. Certainly, we want a good reward to risk ratio. We don’t want to trade Markets that are just consolidating and moving sideways. Therefore, it’s fun to make a trades in a market that’s really moving and your P & L goes up faster. It’s more profitable and you make more money faster and then you can take that same money, put it into another trade, and you can compound your money faster.

That all makes sense except for one little problem which actually turns out to be a big, huge problem; that is, this volatility has cycles, that’s the bottom line. Cycles move in many different ways. There are cycles that are trending and then non-trending cycles. Another type of cycle is the expansion and contraction cycle, and that’s what we’re talking about today; high volatility, low volatility. Another one is randomness and chaos. That’s a big one. We’ll talk about that someday. Another one is just your swing highs and swing lows, that’s the most commonly known type of cycles. But today, that type of cycle that I’m talking about is that the market moves between high volatility moves and low volatility moves. One of the easiest way to see that is with Bollinger bands. And that’s what I have on here today.

Low Volatility Trading Strategy

Bollinger bands are very easy to see markers of volatility. Here you can see the cycles we’re in a low volatility move. And then the Bollinger bands move away from each. This is what you really want to see. So yes, the upper Bollinger band moves up, but you also want to see the lower Bollinger move down. That is the key where they’re moving away from each other. So, it’s actually that lower, even though we’re going up, the lower Bollinger band is very important to look at and make sure that’s going down. That indicates that we’re going into a high volatility cycle and cycles are just time, and then we go into a low volatility cycle again, and where the market has a very low range. So think of volatility as the range of the market.

So low volatility, high volatility cycle. Then guess what, we get back into a high volatility cycle. Then after that, guess what, from here to here, we’re back into a low volatility cycle. Then from here to here, high volatility cycle. Then from here to here, we’re back into a low volatility cycle and you get the point and the average trend on markets these days is five Barry waves. That’s my own unique way of counting waves and this one goes seven so it gets extended and that’d be a good place to start looking for a reversal actually. So you can see the cycles of the market’s moving from high volatility, low volatility. And here’s the mistake that a lot of traded recruiters make; they will actually use a scanner thinking I want to get into a market that’s really moving, so they scan for high volatility markets.

Quantitative Volatility Trading

The problem with that is by the time the mathematical formula of the scanner that gets enough data to accumulate for a high volatility move, guess what, it’s too late. It’s going to catch it probably around here. So it’s going to catch it here because it takes some data to go through the mathematical equation of the scanner before it can confirm that we’re in a high volatility move now. Well, that’s the problem. By the time it shows up on the scanner, it’s late and you’re going to be late for the party and you’re about to enter into a low volatility cycle and then you wonder, ‘how come every time I get into a high volatility market, the market goes into consolidation?’

So you try it again and by the time the scanner and its mathematical formula crunches it and confirms it is up here and you get in, you say good. I mean a high volatility market, and then the market just churns sideways and then you start thinking, the market makers hate me. They’re watching my individual account. The specialists are watching just me and trading against me. No, it’s just that evidently nobody’s explained to you the cycle of high volatility and low volatility markets. So as usual, what you want to do is the opposite. You want to trade the low volatility cycle, you want to scan for the low volatility cycles. Why? Because now you’ve got just the opposite, just about the time that the mathematical formula of the scanner says, OK. So we’re in a low volatility market.

Trend Trading Strategies

Guess what? It takes time for it to do that and it might come up somewhere in a balance. It comes up about here and now you say, well great. So now is when I want to get in on. You can do the several ways you can do the breakout of this high or you can – by the way, one of the biggest questions is the direction of when you get into a low volatility cycle, basically a sideways move, whether it’s a triangle or just a channel, the big question is always ‘which way is this going to break out’? And there are two answers to that. Number one, you want to trade it in the direction of the trend of the chart interval that you’re treating, but only early in a new trend.

The reason for that is the trend is your friend until the end. And what does that really mean? That’s instructional. No, that is teaching you something. If the trend is your friend until the end, then at the end, it’s what, your enemy. So the meaning of that slogan, which is very critical to understand, is that you should only trade in the direction of the trend early in a new trend. So that is what that saying really means. If we can catch this then that’s golden, that’s your first retrace in the new trend. And you can take it here, in this breakout. That’s very good too and maybe even a little bit better. So then again, you scan for the low volatility market in catch up, coming out, scan for the low volatility market. Remember, this has been a low volatility this whole time.

Technical Analysis

So it’s got enough time to calculate in the mathematical equation. Same thing here – and you want to get in early on this. Some people, a lot of people waited for the breakouts. And that’s an old-fashioned traditional way of doing it. But, you’re giving up a lot of your reward. First of all, your risk is greater because in these examples, if you wait for it to break out of here, you’ve already given up all this and I would have gotten in above the high of this bar here. So my risk is much smaller as opposed to the risk of about that. And then not only does it make your risk bigger, but then, of course, it diminishes your reward as well as opposed to that reward, that’s just through the half cycle obviously.

So risk-reward ratio on breakout trades not nearly as good, prefer to get inside of the contraction. And then that’s the key, buying it inside of the contraction. So that is one part of it. The other part is, as far as the direction to trade, only treated in the direction of the dominant energy of the longer term timeframe. So that is the second dancer as to how to determine which direction to take these consolidation trades. So your reward to risk ratio is better. Also, you’re getting in before the retailers, instead, at the same time as the professionals. Retailers always wait for too much confirmation and if you wait for too much confirmation, you’re late for the party and that’s the problem because they don’t have the confidence, the skill or the knowledge on how to get in inside the consolidation.

Volatility Trading

So if you’d like more information on how to trade inside a consolidation, I have another YouTube video on that, on triangles can either just searching YouTube for it or send me an email and I’ll be happy to direct you to that. So, if you liked this video, please understand that sure, it’s free. But if you got value from it, you actually have a moral obligation to pay it forward by clicking on that lovely little share button below. Believe me, the spiritual satisfaction you’ll get from that will be very rewarding and Karma will be kind to you.

In addition, if you’re watching this on YouTube, please click the thumbs up icon below and I love it when you leave comments; that really encourages me to continue to create these free tutorials for you. Finally, I am giving away one of my favorite trade strategies called the rubber band trade; it has s a very high win-loss ratio. I’m going to give it to absolutely free, comes in the form of a 26-minute video, and you can get that rubber band trade strategy by simply clicking on the image in the top right corner of this video or in the description below the video.

There’s a link there for it too, and if you happen to be watching this video somewhere other than on YouTube, there’s probably a link below or an opt-in form on the side anyway. Why don’t you do that? I’ll personally email the video to you with the rubber band trade strategy.

GET MY FREE MARKET ENTRY TIMING INDICATOR

BTW, if you’re interested in the indicator that I use personally for very precise entries and exits. I’m happy to share that with you. Just send me an email at Barry@TopDogTrading.com, and I’ll show you how to get access to that indicator.

What did you think of this tutorial on Scanning for High Volatility Trading Strategies: The Counterintuitive Way? Enter your answer in the COMMENTS section at the bottom of this page.

PLEASE PAY IT FORWARD BY SHARING THIS VIDEO & ARTICLE ON FACEBOOK OR TWITTER by clicking one of the social media share buttons.

FREE GIFT!

Also, I’m giving away one of my favorite new Scanning for High Volatility Trading Strategies: The Counterintuitive Way tutorials. Just fill out the yellow form at the top of the sidebar on the right. Once you do that, I’ll personally send you an email with the first video.

Those interested in Scanning for High Volatility Trading Strategies: The Counterintuitive Way that works in today’s markets also showed an interest in this video:
https://www.topdogtrading.com/swing-trading-strategies-stocks-mcclellan-summation-index/

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