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Forex Strategies – How You Can Use Trailing Stops Profitably

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Forex Strategies: How To Use Trailing Stops

Forex strategies from Top Dog Trading
Bottom Dog Traders don’t use trailing stops so they lose a lot of money when the market moves against them!

This brief tutorial shows how you as a trader of stock, futures or Forex can use trailing stops to manage your risk as part of your Forex strategies.

This is one of the most important Forex strategies, but it applies equally well to trading the stock market, futures and E-minis.

Using stops not only helps protect you against losses when the market moves against you. They can also help you maximize gains when the market moves in your direction.

WHICH TYPE OF STOP TO USE?

Some traders like to use limit orders for their stops. I prefer using market orders to assure that my stop is filled (though it may not be at the price I prefer).

How do I protect against getting filled at a much worse price than I want? That’s where hedging with options come in.

I also place those orders in my execution platform (called a “hard stop”) not just in my head. Some people don’t like to place hard stops because they’re worried that it makes them vulnerable to stop running. I have no concern about that at all.

The brief video below demonstrates how to employ trailing stops in your Forex strategies like a pro!

Enjoy the video and please leave your comments below.

You’ll find the text below this video if you want to follow along.

PLEASE “PAY IT FORWARD” BY SHARING THIS VIDEO & ARTICLE ON FACEBOOK OR TWITTER by clicking one of the social media share buttons at the very bottom of this post:

Video Text:

Hey traders. Doctor Barry Burns here with Top Dog Trading. And today we are going to talk about Forex Strategies. Specifically how to use Trailing Stops.

Trailing stops are stops that you move as the market continues to go in your direction so that if the market goes against your position, you don’t lose so much money.

Let’s get right into it. And here is one technique, there are several techniques that could be used. I’ll talk a little bit about the principles I believe in, and then also share with you one specific technique that I use all the time.

If you went long, and we just use this example over here, and let’s say you went long there. Alright. We had a momentum shift pattern and we are now looking to go to the long side. Okay, so my initial stop would be immediately underneath this low. The reason for that is, this is my cycle indicator, my timing indicator.

CYCLE INDICATOR FOR YOUR FOREX CHARTS

It’s very important to have a timing indicator on your charts. Here’s why:

What is a chart? A chart is a 2 dimensional object. Right, so we have, down here at the bottom, if you can see this. So down here, at the bottom, we have the x axis, which is time, and over here we have the y axis, which is price. And that’s it. A chart is a 2 dimensional object.

A lot of people look at price, they look at volume. And that’s all great, you should. But it’s very interesting to me that very few people actually have an accurate timing tool. And if you don’t have an accurate timing tool, and know how to use it, that means you are neglecting 50% of the information on that 2 dimensional object, we call a chart.

Well, how in the world can you establish a probability scenario for yourself, if you are eliminating, not even considering 50% of the information on the 2 dimensional chart? So that’s why you must absolutely positively have an excellent timing tool, so you know when to get in, when to get out. And we use that, not only for when they get in, when they get out. But also for our trailing stops.

By the way, if you are interested in my timing tool, my cycle indicator here. It’s not the topic for today but send me an email or click one of the links here, and I’ll invite you to webinar. I will give you the indicator for free, and teach you how to use it for free as well.

TRAIL THOSE STOPS

Okay, so anyway, what we are doing then basically is we are just moving trailing stops as one of our Forex strategies, since we are long under a cycle low. Now the cycle low is determined when the colored line gets down here to about 55. So this would be your next cycle low.

After the market goes up here, it’s a cycle high area, then I would move my trailing stop once that cycle low is established. I would move my stop from here, take it away from there and I put it right underneath that low. Usually with Forex, I’m going to do it one pip plus the spread.

Then, let’s see, our next cycle low is over here. So it would go right below these bars here. Okay next cycle low comes in here, so here is the marking on the indicator. Next one’s over here. So we put it under here. The next one is here, the next cycle low indication, and so we put it there. So as you can see, as long as record is trending, putting in basically higher highs higher lows, we are going to be able to stay in the trade.

THE TREND IS YOUR FRIEND UNTIL THE END

Now it’s not exactly quite that simple, because trends have a certain average length of time that they last. And so we are taking that statistically into consideration as well. We don’t want to overstay our welcome.

But the point is, once we make a profit, I usually will lock in some profits, if I buy here, or I got some profits in the very next cycle high. And that does 2 things:

  1. Put some money in my pocket, and then if I get stubbed out for some reason, then I am not getting stopped out on as many lots, not as much size. So my losses remain small. And that’s critical. Absolutely critical.
  2. So another thing we do is not only use our trailing stops in our Forex strategies, but we also look for targets, meaning that as the market reaches certain levels, we will go ahead and take some profit. And the reason for that is, because if you only use trailing stops to get out, then you’re giving back a lot of money, as the market retraces down. So targets allow you to attempt to lock profits in at the highs.

So it’s a money management technique, which all Forex strategies should have. Part of the money management that I teach in the course, again beyond the scope of this particular video. Which is specifically on trailing stops.

That’s one type of trailing stop, and of course there’s others. And let me just finish up by saying two things.

THE LOGIC OF STOP PLACEMENT

This type of trailing stop is based on a very very specific principle. And that principle is this, ‘Stops go where you are wrong’. That’s the basic principle of stops.

So what we mean by, ‘where you’re wrong’? What I mean by, ‘where you’re wrong’ is, when the reason for you getting in the trade no longer exists, your trade should no longer exist. You should be out.

For example, if we bought this cycle low here, our market goes up a little bit, maybe it hits the moving average, and comes down and takes out this low. Well then the reason for me being in this trade long, no longer exists, because I was buying a cycle low. And that cycle low was violated, therefore I need to be out right below that. So the reason for being in the trade no longer exists, therefore the trade should no longer exist.

THE POPULAR TYPE OF TRAILING STOP I HATE

A very popular type of trailing stop used in Forex strategies is using average true range (ATR), meaning that you incorporate volatility in determining how far to keep the stop away from the current market position. I don’t like personally, those types of trailing stops. And there are two reasons:

  1. They’re usually too far away from my entry. And therefore I can’t hold to the critical principle of keeping your losses small, and letting your winners run. But the losses end up being big instead of small. Doing it my way, my losses are puny, tiny.
  2. Also, I don’t like it because there’s a natural cycle in the market, of the market going between expanding volatility and contracting volatility. So the problem is by the time, an expanded volatility is measured, by whatever indicator you’re using, to get an updated measure of that expanded volatility. Often you are about to go into a cycle of low volatility. And therefore those, those stops can be taken out or vice versa.

Worse is actually vice versa, when your measurement is of low volatility and the market is going to go into a high volatility and take you out. So for that reason, because it’s based on historical volatility, there is a cycle between changing from high to low, I don’t find them to be helpful, moving into the future in real time.

Pay It Forward My Friend

PLEASE “PAY IT FORWARD” BY SHARING THIS VIDEO & ARTICLE ON FACEBOOK OR TWITTER by clicking one of the social media share buttons below:

Leave a comment below telling me what other Forex strategies you’d like me to teach in the future.

Also I am giving away one of my favorite trade strategies. Just fill out the yellow form at the top of the side bar on the right. Once you do that, I’ll personally send you an email with first video.

For another video on Forex strategies, Simply click here:
http://www.topdogtrading.com/forex-charts-support-resistance-tricks/

Go here to Subscribe to my YouTube Channel for notifications when my newest free videos are released:

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Forex Charts Support Resistance Tricks

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 Forex Charts Support Resistance Tricks, Part 1

Forex chartsThis brief tutorial shows how professional traders of stock, futures and Forex charts use support and resistance levels differently than amateurs.

Retail traders often learn just enough to get themselves (and their trading accounts) into trouble.

One example is misunderstanding how support/resistance levels are properly read.

Common Problems

Have you ever used support/resistance to enter or exit a trade, but you miss the trade because the market didn’t quite reach that level?

Or conversely, the price bars on the chart (whether Forex, stocks, E-minis, etc.) went through your support/resistance line, so you didn’t think it held, and then the market bounced back toward the line on your chart.

This quick video will show you how to read support/resistance levels like a pro!

Enjoy the video and please leave your comments below.

PART 2 is now posted further down on this same page with a follow-up video.

You’ll find the text below this video if you want to follow along.

PLEASE “PAY IT FORWARD” BY SHARING THIS VIDEO & ARTICLE ON FACEBOOK OR TWITTER by clicking one of the social media share buttons at the very bottom of this post:

Video Text:

Today we are going to go over a Forex Charts Strategy with regard to support resistance. A lot of people have a misunderstanding about support/resistance thinking that the market needs to go right to the previous high, previous low, the pivot level, the Fibonacci level, whatever support/resistance level you’re looking for in Forex charts, and that is absolutely 100% not true.

Support and resistance levels are not lines. We see them as lines on our charts but they are actually zones. Now that makes it a little more tricky to establish exactly where those value areas are, so we need to have an objective strategy for doing that and that’s what I am going to share with you today.

The Basics

So right now, we’re going to look at just very simple previous highs and lows on Forex charts. Here we have a previous high, and then here we are coming up to another high.

A lot of people would say that this high did not provide resistance for this high over here because it made a lower high. It’s technically is true if you’re just simply looking at the highest themselves. So we have a high here and a lower high here. However that is not really the most accurate way to look at it. And the reason is this, in my treating approach I talk a lot about market logic, and by the way I have noticed a lot of other people stealing that term from me lately, which I’ll take as complement. But all my trading is based on market logic which essentially is founded on the principle that markets are huge auction places, that’s what they really are in real life.

And so if we want to have a strategy that’s going to work and continue to work in the future on Forex charts, it needs to be based on the logic of masses and masses of people and how they operate in an auction place.

Support/Resistance Principles

One of those principles, when it comes to support resistance is that the markets are a bit messy. They are not completely accurate. In other words what I am talking about here, let’s look at this again, so we made a high here, and that’s great. And little bit lower high here. To expect the market to go back up here, and let’s actually draw a horizontal line, let’s make this really pinpoint precise. There we go. So for a mark way at that high, a lot of people would expect the market to come back up and reach that high. The highest high that was previously made as resistance.

The problem with that is markets are not that neat and tidy, again to translate that into market logic terms, human beings as they behave en masse.

Remember we got, this is the Euro, US dollar. We’re talking about the spot Forex market, so first of all there is no central exchange. Number 2, you got people all over the globe trading this thing. So you got masses, hundreds, thousands, millions of people all trading this. And to expect that the market’s going to be a perfectly accurate, and coming up and touching this high and then going down, well sometimes that happens but that’s the exception to the rule.

So we have to allow for that messiness of human behavior. As it comes up to that high, people are a little afraid, little scared, maybe they get overly aggressive, we have to count for both of those because that’s how human beings operate, is they operate in emotional ways. Fear and greed being the primary two emotions in the market.

How to Trade Forex Charts Like a Pro.

So instead of using the highs, what I like to do is use the candle stick real bodies. So I’d bring it down to there. And this is one approach. There’s another technique, and I’ll show that in a future video, but if we use this, then what we’re saying is, these wicks here, on candles, these shadows on candles, are areas where the market did not find real value. And rejected these values, to use market profile terms, and this is really where the significant resistance was, where the real bodies are.

So that’s where we need to start looking for resistance. And since the market does come up and hits the line that we draw of off the real bodies. Therefore we’d say yes, this high did provide resistance for this high. And that’s a very good way of doing it. Now let me show you another way.

Another way would be to look in this area and connect as many of the bars in this  zone as possible. So we could go back to this, connect this bar and then 1, 2, 3, 4, 5 bars. And then you’ll see that it brings it down even lower and it connects with 3 bars instead of just the 1. Again this is just a very logical approach to say that this zone or this area within here is where the market found a lot of resistance to go up any further.

And instead of looking for the extremes, look for where the majority of the voting was. You can look at it that way. Majority of the voting was, as far as people starting to feel that this is getting overbought. And connecting the most bars together there and using that as your line for your resistance.

The Bottom Line

So bottom line, remember support resistance levels are not really lines, but they are zones on Forex charts or any other financial market’s chart’s. If you see either one of these strategies, thereby drawing it off of the real bodies, or connecting the most bars within that area, within that zone, then that’s one way of showing that you are looking at zones instead of just lines.

Therefore you’re accommodating the not just idea, not just the principle, but the fact that markets are a bit messy, they are not completely accurate. When masses of people are trading, they are going to get a little scared, get out a little earlier than the recent time or maybe get out a little bit later.

In the next video, we’ll look at what happens when you make technically higher high but it’s really holding resistance. It is not really to be considered a higher high. So we’ll look for that in the next video.

Leave a comment below telling me what other stock market trading strategies you’d like me to teach in the future.

Also I am giving away one of my favorite trade strategies. Just fill out the yellow form at the top of the side bar on the right. Once you do that, I’ll personally send you an email with first video.

For another video on Forex charts, Simply click here:
http://www.topdogtrading.com/stop-running-for-emini-trading-forex-day-trading-and-stock-market-trading/

Go here to Subscribe to my YouTube Channel for notifications when my newest free videos are released:

https://www.youtube.com/user/TopDogTrading?sub_confirmation=1


Forex Charts Support Resistance Tricks, Part 2

This quick tutorial is a follow-up to part 1 above. In this video I’ll show how professional traders of stock, futures and Forex charts use support and resistance levels differently than retail traders.

Amateur traders often learn just enough to get themselves into trouble. Remember to treat your study of Forex charts seriously. The devil’s in the details!

One example is misunderstanding how support/resistance levels are properly read.

This quick video will show you how to read support/resistance levels like a pro!

Enjoy the video and please leave your comments below.

You’ll find the text below the video if you want to follow along.

PLEASE “PAY IT FORWARD” BY SHARING THIS VIDEO & ARTICLE ON FACEBOOK OR TWITTER by clicking one of the social media share buttons at the very bottom of this post:

Video Text for Forex Charts:

Hey my friends, Doctor Barry Burns here, with Top Dog Trading.  And today we go to part 2 of our little series Forex Charts Support and Resistance Tricks.

Obviously there was a part 1 and if you didn’t see that, then I’d say go ahead and watch this video first while you’re here and then after you’ve watched this one, go ahead and type in the exact same subject except for part 1 and watch the first part because that covers things not in here.

The Premise

The basic premise that we talked about in part 1 is that support and resistance levels are actually zones and not lines. Because of the market being rather imprecise because of masses of masses of people trading and get hundreds of millions people, all trading this stuff and so not everyone’s going to buy, sell, takeout stops, take profits at the exact same place and that’s makes markets a little messy.

When it comes to resistance for example, here is a resistance level at a previous swing high. So that’s the high obviously. Now in the last video, in part 1 we talked about what happens when you put in a lower high. But it still reaches the resistance zone. Now this time we are going to talk about the exact opposite. How to determine whether market is broken through resistance if you put in a higher high.

A lot of people think, “oh if you put in a higher high then that resistance was already broken.”

Not necessarily, because it’s not really a line, even though it looks like a line that we draw down there. But it’s truly the zone. So here we go.

So let’s take it off there for a second. We got our line already brought there so now, here the next bar, we come back up to that resistance level. That zone.

This was the high and now we put in a higher high. Technically that is a higher high. But have we broke the resistance yet? The answer is no. it’s not broken. It’s what I call, pierced. Because of a couple of things.

Digging Deeper into Forex Charts Support/Resistance Levels

The market closed, and that bar closed back down below that previous high. So it tested price is above there. But at least at the moment, this previous swing high is not literally broken but the market is testing it.

The next bar, it’s still not broken, we put it in an inside bar so that’s just neutral and that sort of thing happens a lot. When we come into support resistance zones, if lot of people see that resistance zone and they aren’t sure yet if it’s going to break or its going to bounce off of it. And so the market tends to pause. People are waiting to see what will happen.

Now the next bar, it does put in not only higher high but also closes above the previous swing high. So again here is our previous swing high and now the bar closes above the high. The previous swing is till not broken, it’s still only pierced.

The basic concept here is that we want to see above this resistance level, a real commitment of traders in the market place. Again, because you have so many people buying, selling in the market isn’t going to always hit the resistance level on the Forex chart to the penny, the pip, the tick. It’s going to go little bit above, little bit below.

We need to give it that allowance. So at this point you see, the candle stick is still half above, half below and so we are still going to say, okay we are in this resistance level but the market hasn’t decided yet if it is going to go through or if it’s going to bounce off.

The next bar, it still hasn’t decided. Why? Because its inside bar to the previous bar.

The Confirmation of a S/R Break

Alright, next bar. Boom. Now it has decided. Now that’s a commitment. So the rule I use, this is the bottom line, rule is that we need an entire real body, meaning the entire red or green part of the candle to be above  the high of the previous swing high.

When that occurs, then I consider that resistance level actually broken and the market having committed to saying “yes.” We are now considering this resistance, no longer to be resistance, could turn into support later. But anyway for the time being market is seeing that, yeah we believe that the market is worth more than the value over here. There’s a real commitment of money, buying and selling.

And if we go little further keeps going up, keeps going up, keeps going up and now obviously it’s really broken. But our signal that we would consider it really decisive would be this bar right here.

ANOTHER EXAMPLE

The last one we saw where the market did break through the resistance level. Now let’s see this one where it does not. So you can see the opposite.

So we’ll go off of this swing high here and so there’s a swing high. Now when we come back and we test that resistance level again, what happens? We technically put in a higher high. But would we consider at this resistance level or zone is broken? The answer is no because the market has not really made a big commitment to it yet.

Yes its put in a higher high, yes its closed above the high but it opened below that and this candle is splitting that horizontal line. And so therefore there is not a strong commitment up there yet. It’s all just in the area of being messy. The messiness of the bid/ask auction place.

And then as you can see the very next bar comes down and that resistance is not broken. It is tested, a little bit of you know, again just chaos where market go a little bit above, little bit below the line, we allow for that and now we have a rule for it.

That rule is the real body of the candlestick on the Forex chart has  to be completely above this resistance line. It wasn’t and then the market completely rejected that. And came on down and resistance held. It’s very simple. It’s very objective.

Pay It Forward My Friend

PLEASE “PAY IT FORWARD” BY SHARING THIS VIDEO & ARTICLE ON FACEBOOK OR TWITTER by clicking one of the social media share buttons below:

Leave a comment below telling me what other stock market trading strategies you’d like me to teach in the future.

Also I am giving away one of my favorite trade strategies. Just fill out the yellow form at the top of the side bar on the right. Once you do that, I’ll personally send you an email with first video.

For another video on Forex charts, Simply click here:
http://www.topdogtrading.com/stop-running-for-emini-trading-forex-day-trading-and-stock-market-trading/

Go here to Subscribe to my YouTube Channel for notifications when my newest free videos are released:

https://www.youtube.com/user/TopDogTrading?sub_confirmation=1

Stock Market Trading Strategies: Volume Breakouts That Fail

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Stock Market Trading Strategies: Volume Breakouts That Fail

Stock Market Trading StrategiesThis brief and straight-to-the-point video addresses the issue of trading breakouts, which is one of the most popular and commonly taught stock market trading strategies.

Unfortunately many day traders and swing traders find that breakouts often fail. In fact their seem to be more false breakouts now than ever before.

By the way, the title says “Stock Market Strategies,” but what you’ll learn in this video applies equally well to futures, E-minis, commodities and Forex.

Enjoy the video and please leave you comments below.

You’ll find the text below the video if you want to follow along.

PLEASE “PAY IT FORWARD” BY SHARING THIS VIDEO & ARTICLE ON FACEBOOK OR TWITTER by clicking one of the social media share buttons below:

Video Text:

Welcome everyone. This is Doctor Barry Burns with Top Dog Trading. And today I’m going to share with you, one of the most popular stock trading strategies that is well known and used by many, and it’s a good one.

However, today I’m going to show you little nuances that you need to be careful with. Breakouts don’t always work quite as well as people think. But there is an answer to that and I’m going to share that with you in this short video.

So, the strategy is very simple. Basically what we’re doing is, you’re looking for a previous high like this, and then you’re looking for a breakout. So breaking out of that high means you would get a higher high and what you want accompanied with that in this particular strategy, the way that it’s designed is, you want to see volume going with it. Good volume and so here you’ll notice when we get this big move up here, we did have an increase in relative volume.

Then volume declines a bit. And this bar here, we get a little bit of extra volume. It’s not real significant but we do get some. We do make a higher high. Now more significantly those move forward. Volume pretty much stays down here and then we get this big volume bar.

Now doing the same thing, we are going to look for this high here to be broken. So in this way, sometimes volume even be a leading indication, I am not going to say indicator because volume’s not an indicator, it’s just what is what is. Doesn’t indicate anything, it actually measures an actual number which is how many shares are coming through the market.

So this would be an indication that we should break this high and continue with the uptrend. Right. So that’s the traditional thinking and many times that is true.

And let’s see what happens. so the very next bar, yup indeed, it makes a nice gap up. So if you are following this strategy, the typical way to trade this is to wait for to break above the previous high and then when it does, on volume we get 2 bars of nice volume here. Then you would buy, and hope that it continues up. Okay, so let’s see what happens.

So then after that, market, well wait a minute, comes down, comes down, ah oh. Now it broke even below, so if you look over here, these lows, it broke below those lows. Hmm.

Not exactly what we wanted right. We are looking for this thing to buy here and for it to go up. And instead, it actually comes straight down. Comes all the way down to, that’s the 50 period simple moving average, that green line.

It broke these lows. It really didn’t go up at all. Other than that one bar, and then it continues to move down even further.

So what went wrong? What’s the problem? The problem is very simple. As with all stock market trading strategies, it’s contextual, meaning that the strategy works when done in the right context, with the big picture of the overall chart. So let me show you what I mean, when we look at this, we see that the market has already been moving up for quite a while.

So we have these waves. Let me bring out my little arrow here. So we got to move up, and then this would be a trend retrace of consolidation, another move up, retrace or consolidation, another move up, another move up.

So if you use this, just for counting the waves, you would have 1, 2, 3, 4, 5, 6, 7 and what that means is that is now in extended trend. Counting waves this way, the average wave count is 5, which would be right there.

Again 1, 2, 3, 4, 5. 7, and what that means is this is an extended trend and therefore that’s actually a good place to start potentially looking for reversal trades.

Now don’t just take them, there are separate rules for when those are high probability. But at the very least, it’s the low probability for the trend to continue. Therefore, yes indeed we do get high volume on the breakout. But now that volume is to be interpreted differently, that volume is to be interpreted as exhaustion volume rather than continuation volume.

So the bottom line rule is very simple when looking at stock market trading strategies such as this. Early in the trend when we get big volume coming through. Bigger volume coming through on the market. And breaking these highs, then you have good odds of market continuing in the direction of the trend.

The longer that trend continues, the more likely it is to not be continuation volume but rather exhaustion volume, showing the exact opposite, showing a high probability end of the trend. So seeing the big picture, the devil’s in the details, things are, you know the simple rules are nice to have, but simple is good up to a certain point.

Then to become a professional trader, you need to understand the new answers. So that you don’t get hurt.

Leave a comment below telling me what other stock market trading strategies you’d like me to teach in the future.

Also I am giving away one of my favorite trade strategies. Just fill out the yellow form at the top of the side bar on the right. Once you do that, I’ll personally send you an email with first video.

For another video on stock market trading strategies and chart patterns, learn about how to trade Triangles like the pros. Simply click here:
http://www.topdogtrading.com/how-to-day-trade-and-swing-trade-triangles/

Go here to Subscribe to my YouTube Channel to get notified when my newest free videos are released: https://www.youtube.com/user/TopDogTrading?sub_confirmation=1

PLEASE “PAY IT FORWARD” BY SHARING THIS VIDEO & ARTICLE ON FACEBOOK OR TWITTER by clicking one of the social media share buttons below:

 

E-mini Futures – A Profitable Trade Strategy For You – updated

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E-mini Futures Strategy

E-mini Future’s – How To Create “Structure” For Price Action

This short day trading video (6 minutes) shows how to use 4 moving averages to help you see direction and support/resistance on all markets. Yes, the title says “E-mini Futures” but this works equally well for the stock market and Forex. It also works for day trading, swing trading and investing.

Enjoy the video and please leave you comments below.

You’ll find the text below the video if you want to follow along.

PLEASE “PAY IT FORWARD” BY SHARING THIS VIDEO & ARTICLE ON FACEBOOK OR TWITTER by clicking one of the social media share buttons below:

Video Text:

Today we are going to talk about a strategy trading the E-mini future’s and actually this strategy can also be used for all stocks for Forex or commodities. It’s about the structure in the chart.

Lots of people look at charts and they can’t make heads or tails out of them, they can’t see any order in them. And it’s very important to have clarity, so that’s where I am going to help you today. By using certain moving averages.

Here are the moving averages I put up on my charts:

  • This black one here that is a 15 Exponential Moving Average.
  • Then the red one is a 50 period Simple Moving Average.
  • The yellow one is a 100 Simple Moving Average.
  • And then this purple one is a 200 period Simple Moving Average.

Those are the four that I put up on my charts. Now they serve 2 different purposes:

  • Number 1 is support/resistance.
  • Number 2, we look for how they align with each other and interact with price.

So for example, here as you can see, in this area, really all through here, the price is kind of stuck in the moving averages.

The first thing to notice is that all four moving averages are very close together. So basically what that literally means is, price hasn’t really done much for the last 15 bars, 50 bars, 100 bars, 200 bars, and therefore we call that a consolidation time and it is very similarly dynamic to a Bollinger Band squeeze.

Bollinger Band squeezes are where they have a low volatility time. And that actually is a wonderful time to look for a trade. Because there are cycles in the market, many different types of cycles. I think when most people think of cycles, they probably think of just up/down cycles like that. Sorry my artistry is non-existent. And they would see these as cycle high, cycle low, cycle high, cycle low. And that is true, that is one type of cycle and a very important one.

But another type of cycle is expansion/contraction cycles. And those can be played very well for trading. Can make a lot of money doing that. What we look for is a contraction cycle. Lot of people do this wrong. They will scan markets. They are looking for high volatility markets, thinking, “Oh I want to be in a high volatility market because that means market’s moving a lot and I could make a lot of money because it’s covering a big range in a short period of time.”

The problem with that strategy is that by the time that shows up on your scan, there has to be enough data for that to be actually calculated and show up on your scan. Quite often you are going to be coming to the end of a high volatility period. And then it’s going to go in a low volatility period. That’s the expansion/contraction cycle. So the better thing to do is to actually scan for low volatility patterns and again Bollinger Band squeezes are great.

But here is another thing you can look for and that is simple. Again, this works for E-mini future’s, stocks, Forex and other markets: These four moving averages all clustering together like that. And then we look for a break out. You can trade it different ways. You can use your favorite indicator, use whatever you enjoy doing. You can look for a break out of that high. And notice how the moving averages now start pulling apart. And of course then the market just takes off.

One last thing that I will show you on this particular E-Mini Future’s video. Let’s move forward here, and when we get a trend reversal. Okay, here’s another way you can see structure. By the way this is called the stacked moving average pattern where we have the 200 at the bottom. 100 above it. 50 above it, and the 15 above that. And that’s generally consider a trending type of structure when that happens.

Now the other thing I really like is the 15 EMA. Some people use  the 20 MA and that’s fine. Again, the exact number you use isn’t going to make a huge amount of difference but just from trading literally decades now, I decided I like this one.

And so what I look for is, that’s the first line of demarcation where things are expected to change. So that is what happens right here. Price goes below the 15 EMA and then notice what happens, it stays below that 15 EMA all the way down. So then it crosses the 15, the 100 and even the 200. But it’s this 15 EMA, as I said before, they provide support/resistance as well. That’s what I look for and that works out beautifully.

So putting these four moving averages on your chart can start to give you some structure, a visual structure to price and be very helpful. Oh, look at that we got a new release for a Ninja Trader. That’s great. Well I am going to go download that now. But while I am doing that, I hope you liked this video. And if you did, please click the like button below and leave a comment telling me what you’ll like me to cover in future videos. I am very responsive to that. We’re kind of forming a community here and I love that.

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