TRADING OFF THE 15 MINUTES CHART
Here below are the steps that need to be followed in this scalping strategy:
1. MARKET FILTERS
These are the filters that you should use to identify a trading opportunity in the market. In order to identify which of the six market conditions you are looking at, use the Bollinger Bands, the 21 period Exponential Moving Average (EMA) and the MACD.
· The Bollinger Bands and the MACD will form a narrow channel in a quiet sideways market; a wide wave in a volatile sideways market.
· The Bollinger Bands will trend upwards or downwards (the MACD histograms will be above or below the zero line) with candlesticks forming a smooth staircase in normal bear or bull markets; wild shaped candlesticks in volatile markets.
· The 21 EMA will be flat, slope upwards or downwards in the sideways, bear and bull market structures respectively.
· The MACD histograms will signal the end of a price swing/trend (and the start of a new one) when they cross the watermark/zero line while at the same time price is crossing some EMA.
Identify price turns on any chart (1, 5, or 15 minutes) that bounce off any moving average line, a trendline, a Fibonacci retracement level or any static/horizontal level of support or resistance to head along the near-term trend. This may constitute a trade set up. Check it for one or two confluent conditions for confirmation before a trade entry may be executed. The most common confirmations for a sustained trend are the MACD histograms crossing the zero line, a full bar closing away from a moving average line or any level of support or resistance (dynamic or static).
2. SET-UP RULES
· Buy at support when price is above the 21EMA and is moving up.
· Sell at resistance when price is moving down below the 21EMA.
· Open the trade position when a three bar reversal candlestick pattern is seen and the third candlestick has closed above the open/high/low of the apex bar.
· Be mindful that price turns sometimes require confirmation such as double or triple swings to appear before a determined movement in the new direction may be effective. Be particularly watchful for these confirmations after price crosses over the moving averages, bounces off the outer Bollinger Bands etc.
· When there is some consolidation on the 15 minutes chart, look out for a full 5 minutes candlestick closing away from the consolidation boundary heading towards the opposite channel perimeter. A 15 minutes candlestick closing as an engulfing candlestick may be adequate confirmation for a break-out trade.
· Only open a trade when price is starting to move away from the trade trigger point. This calls for a Buy Stop or Sell Stop being placed just outside the trade trigger point and waiting for price to move and trigger the pending order.
· The turn in the stochastic and its reading below 47 (for a sale) or above 53 (for a buy) coinciding with the three bar reversal pattern appearing at a level of resistance or support is an added indicator. So too are the MACD histograms crossing over with the signal line or crossing the zero line being in support of the trade set-up.
· A price swing outside the outer Bollinger Band is a good indicator of a possible change in the direction of price as it may subsequently move towards the middle Bollinger Band line and even beyond to the opposite outer Bollinger Band line. However, check it in case it may be counter-trend and its move in a strong trend that is not yet exhausted may not exceed the Bollinger Middle Band.
· When price is moving sideways and forming a channel, this is a good trade set-up. Look out for price turns in the channel forming double and triple pivots (tops or bottoms) before a move occurs to break-out of the channel. Look out for a full candlestick to close away from the 21 EMA as confirmation of a break-out and itself a trade trigger.
· Quick price turns do not form a channel. Price bounces off a level of support or resistance in the form of a dark cloud cover, a doji, an engulfing candlestick, a piercing line, a pin bar, or a spinning top. The third candlestick is the trade trigger as it takes out the open of the apex bar.
· The key is to watch the 21 EMA. If price is above it, look for buying opportunities and if price is below it, look for selling opportunities. Watch the condition of the market on the 4Hr and 1Hr charts whose story controls the 5, 15 and 30 minutes charts. Flat markets (horizontal 21 EMA) may be retracements and these demand trading with caution until price resumes the trend with high momentum. During trends, buy bottoms and sell tops while following the trend as defined by the 21 EMA. Look for three bar reversals around the dynamic support or resistance levels such as Fibonacci levels and moving average lines. Watch the MACD histograms where a crossover of the zero line signals that a trend has started while reduced height of the histograms are pullbacks where scaling in can be done.
· Quick price reversal that leads into a good intra-day swing usually start after news announcement or when the regional financial centres open or close for business. Be mindful of the times scheduled for news announcements that have huge impact on currency pairs on the watch list and the times when the regional financial centres open or close for business. No trade may be opened if the next level of support or resistance is less than one ATR away.
3. TARGET FOR PROFIT TAKING
The target for the trade opened on a 15 minutes chart should be the last price swing high, swing low, 2 X ATR reading or the opposite Bollinger outer Band which-ever is largest.
4. STOP LOSS
The stop loss order should be placed outside the three candlestick reversal pattern that defined the trade set-up on the 15 minutes chart or ½ the ATR reading whichever is furthest away from the trade trigger point.
5. POSITION SIZE
Limit risk to 0.5% of the account balance and use position size calculator at http://tools.winnersedgetrading.com/RiskCalculator/ to determine the lot size to trade given the level of risk in the stop loss level. This will allow more trade positions to be added on as price moves favorably on the already opened trade positions. Each additional trade must not increase the risk over the 0.5% limit requiring to be opened each time price pulls back and subsequently resumes its trend.
6. TRADE MANAGEMENT
Watch price movement and secure the accrued profits with a trailing stop loss order at the high or low of the previously closed 15 minutes candlestick.
Each time there is a pullback and subsequently the pullback has ended and price resumes its trend, a new trade position should be opened with stop loss order for the new trade where the immediate pullback ended. Care should be taken where the pullback starts at a major level of support or resistance when the trend appears exhausted (around fib 161.8%) as it may be the end of a trend. Pullbacks that start with a strong dark cloud cover, an engulfing bar, a piercing line or pin bar must be checked for other confluent factors such as previous price turning point or market exhaustion.
In the effort to allow a trade in profits to run, a good tip is to endure pullbacks up to the 21EMA or the Bollinger Middle Band that determine the trendline. Strong pullbacks may proceed up to the opposite Bollinger Outer Band and in such instances, check the fib retracement not to exceed 61.8%.
Before price crosses the 21EMA in the opposite direction to the trade, the Bollinger Outer Band gets flat. This indicates that price may bounce off it to form a double top or bottom which gives a good opportunity to scale down on the trade by exiting a portion of it.
The perfect moment when to close a trade completely is when price moves to cross the 21 EMA in the direction opposite to the trade on the 15 minutes chart.
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