I just watched this webinar by Jim Prince, titled Trading Market Cycles: A Stress-Reducing Approach to Timing Entries and Exits. Jim Prince is the Director of Trading Education at Barchart.com.
Jim presented a simple trend-following method, using the slope of the 50-period SMA as the trend, and a slow stochastic to time retracement entries. Pretty straightforward simple stuff, but usually its the simple stuff that works.
Some notes of the method below:
- 20-period SMA
- 50-period SMA
- MACD (5, 21, 34)
- Slow Stochastic (5, 3, 2). Focus on the %K.
- 50-period SMA pointing up
- Slow Stochastic at or below 25 and hooking up
- Price has pulled back to a zone around the 20-period and 50-period SMAs
- When the above conditions are fulfilled, you have your entry candle, place a buy stop 1 tick above the high of the entry candle.
- 50-period SMA pointing down
- Slow Stochastic at or above 75 and hooking down
- Price has retraced to a zone around the 20-period and 50-period SMAs.
- When the above conditions are fulfilled, you have your entry candle, place a sell stop 1 tick below the low of the entry candle.
- Initial stop
- For longs, initial stop loss should be placed just below the recent pivot low.
- For shorts, initial stop loss should be placed just above the recent pivot high.
- Trailing stop
- Move down to a smaller time frame (e.g. 60-min), and use levels of support and/or resistance in that time frame to determine a new point to which you might move your stop loss. Try to move the stop as quickly as possible to break-even.
- When you see divergence between the price and the MACD histogram, tighten your stops because you are expecting a bounce.
- If you see divergence of price with MACD histogram AND the Slow Stochastic, there is high probability that the market is about to turn.
- Two methods
- Support and/or resistance levels.
- Wave projection method – Measure the length of the last swing in the direction of the trend, then project that same distance from the start of the next swing in the direction of the trend.
- Take half of the position off at the first support / resistance level.
- This method will help us stay out of choppy markets when the 50-period SMA is flat, but that also means there are also times when we will miss the initial breakout of a trading range.