The Three Wave Reversal
The following is a trading strategy relying heavily on pattern recognition. Some technical analysts, not only rely on whatever indicators there are in their toolkit, but alstry tfind reliable repetitive patterns. One of the most common patterns in trading and graph analyses is the three wave pattern. Most assets maintain a trend for about three waves. Though not all assets will follow this rule all the time, most will. Therefore, when building a plan for your trading portfoli, it makes sense tcount the waves.
Trade with the waves, we must look for the pattern as an end of trend, or reversal trading strategy. The three waves pattern is a very indicative pattern that signals a trend reversal. It can also be used as a trend continuation. But let’s explain the reversal pattern first, you’re account manager will explain the exceptions. Example: In an up trend, the market meets a new peak, labelled point X. Price then pulls back to short-term support level, labelled point Y. Finally, price moves up tan area betweenpoints x and y, labelled point Z. It then reverses down again and begins a trend in the new direction. Trade opening point: The pattern is complete when the price trades below point Y. At a three wave top, the strategy is sell on a break of point Y. The measuring objective is the distance between point y and point Z projected below the break at point Y. The stop loss is set just abovepoint z but a more conservative stop loss is above the start of this move, at point x. An optional sell is at point Z, only if point Z is at the 50% retracement level of the move from X ty. Alls watch for reversal candlestick patterns at point Z ttrigger the entry.
Point Z should retrace at least 40% (you can use your Fibonacci Table taccess that) of the move down from point X tpoint Y for us tconsider a third wave reversal. It’s alsolikely that if the pattern has between 10 and 20 bars between points X and Y, it is morelikely tmeet the pattern. What I have tsay about that is back test and see for yourself. Some traders make most of their trades based on this pattern alone. It has a certain tendency tbe relevant for most assets, even new ones as Cryptocurrencies.
The Continuation Method Trading Strategy
The Continuation Method is a trend following technique that works across all markets. Using this method gives you good odds of winning from 50-70% of the time and even up to 80%.Trend following is a scientific and mechanical way to approach trading that removes most of the guess work. It has a strong history of performance during crisis periods and is at the core of most of my trading methods.
The idea behind the Continuation Method is wait for a set back in the market and then jump in the direction of the trend. We are using only technical analysis meaning that we aregoing tbe looking at price charts for different currency pairs tmake our decisions.
You can trade this method based on long-term or medium-term trends (this means that itdoesn’t have ttake a lot of time).
Setting Your Stop Loss and Take Profits
- Take Profit – a good location for take profit is 4-7 times the average true range of a given time frame.
- For example, if the average true range (ATR) for your time frame at the time of entry is 7 pips, you wantyour take profit tbe 28-49 pips.
- The next step is draw a zone or place lines on the chart from 28 – 49 pips and then move to larger time frame determine where the most sensible target in that zone would be.
- Anywhere within the 4-7 ATR zone will put you at an advantage texit the trade with a wina high percentage of the time.
- Using technical analysis tenhance your entry point with in the ATR zone will take your profit ability the next level.
- Stop/Loss – Placing your stop/loss outside the ATR zone is key this strategy.
- The stop loss zone for this strategy is 7-12 times the ATR on a given time frame.
- Using the example above, the stop/loss would be 49-84 pips.
- Once again, you want revert to larger time frame see where the best place is place your stop/loss within this zone. Using technical analysis help you place your stop/loss is helpful.
- The key your stop/loss placement is that you don’t want it be an easy target.
- We realize that every once in a while, the market will take out a stop/loss regardless of where you place it. But if you are winning better than 70 percent of your trades, you are still making money consistently.