Cup Breakout with MA strategy is based
on moving averages and Cup pattern of price.
This article is advanced, in order to
deal with the study of this article, the knowledge to have is: trend
analysis with moving averages, price patterns (in particular Cup and
Triangles), draw trend lines, horizontal lines, knowing areas of
congestion prices.
What to Trade:
Currency pairs majors, Indices, top
stocks.
When to Enter:
1. Alternative Entry: Bouncing off of
Significant Moving Averages
2. IBD Pattern Breakouts
3. Support/Resistance Bounces or Breaks
When to Exit:
1. Stop Losses: 1-2% above or below
swing high or swing low or Closing Price violates
moving average that triggered trade.
2. Hard Stop Loss 5-7% loss from entry
price.
3. Profit Stop: Cash Flow Trade a set
percentage 5-10%; or closing price violates selected moving average;
or at Support/Resistance.
4. Profit Stop after candlestick
reversal signal & close below/above 8 day EMA.
When To Enter:
Identify Current Trends, Patterns &
Action Points
1. Define The Major Market Trends.
2. When trading from an established
list, the trend of many stocks on the list will already be definable.
3. Trade with the Major Trend—This is
the Edge.
4. Define Key Trend Reversals and Entry
Action Points.
When To Trade:
Identify Current Trends
Uptrend:
1. Higher Highs & Higher Lows
2. Up Sloping 20-50-200 day SMA’s
3. 20 day SMA above 50 day SMA
(Exceptions: Reversals Patterns or Higher Lows)
Downtrend:
1. Lower Lows and Lower Highs
2. Down Sloping 20-50-200 day SMA’s
3. 20 day SMA below 50 day SMA
(Exceptions: Reversals Patterns or Lower Highs
Sideways: Chaos
1. Box like pattern or Consolidation
Pattern
Identify Current Trends: Moving
Averages
The Moving Averages are key!
Understanding what to expect around the
moving averages provides the trader with an edge!
The basic thesis behind moving averages
is to identify key resistance and support levels of the underlying
security so that one can detect the continuation of a price trend or
the emergence of a new price trend.
Moving averages watched by
institutions:
20 or 21 Daily, 50 Daily, 200 Daily.
Traders also use shorter timeframe
moving averages to better trigger entries and exits.
8 or 10 period EMA works well for these
triggers.
Weekly Period Moving Averages which
approximate the Daily Moving Averages can also
be helpful during analysis.
50 Day Moving Average approximately
equals the 8-10 Week Moving Average
200 Day Moving Average approximately
equals the 40 Week Moving Average
Patterns: Define Action Points
1. IBD Patterns
2. Candle Stick Patterns (Separate
Presentation)
3. Moving Average Bounces
4. Trend Line Breaks
Supporting Clues: Keltner Channels,
Stochastics & Momentum
Entry Action Points
1. IBD Proper Buy Points
2. Active Trend Trading Buy Points
Thoughts on Strategic Exit Action
Points
Executing a proper exit can be
challenging unless the trader acts automatically at well-defined
strategic exits Action Points. Again with an aim at keeping this
initial strategy simple and objective the following exits are
suggested.
Stop Loss:
1. Hard Stop Loss at 7-8% of entry
price if entering off an IBD Breakout
2. Breaking Swing Low or High on
Alternative entries by 1-2% or tighter
3. Close below Moving average that
triggered trade
Profit Stops:
1. Profit Target at 20-25% of entry
price.
2. Areas of Resistance/Support like
moving averages.
3. Close below Moving average that
triggered trade.
3. Stay in trade until a close below
the 8 day EMA
4. Cash Flow Trades: Once paper profit
is up over 10% adjust trailing stop to entry price plus 5% and then
increase trailing stop by 2.5% for every 5% increase in stock price.
Or close below 8 day EMA.
Two examples of trade below.
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