Retested entry and exit strategy.
Originally written on lifestylemaniacs.com
So You have decided to give trading a chance. You’ve probably learned the basics; if not, I encourage you to see some Youtube videostake something Coursesor read a book To this topic. I left some useful links as you can see.
I watched YouTube videos and followed the course above and there is a lot of information that overwhelmed me. After 3 years of trial and error, I finally found a minimalist chart layout and trading strategy that brought me consistent rewards.
I retested this layout and strategy on multiple markets (individual stocks, ETFs, commodities, crypto, forex) and always got an average profit / loss ratio of 2. This means that I had at least 2x more profits compared to losses.
Before we dive into the tools, we need to make a few considerations first:
1-day Heikin-Ashi diagram
We will always use the 1D Heikin Ashi diagram. We’ll never bother checking 1 hour or 1 minute charts or regular candlestick charts as they are full of noise and difficult to interpret.
I found the 1D Heikin Ashi chart to be the most accurate and detailed concurrent chart.
Buy: green Heikin Ashi candle without bottom wick
Sale: red Heikin Ashi candle without upper wick
Short / medium term investment
We will focus on short and medium term investments as we will see corrections along the way. For example, even though we are in a bull market, there may be a downtrend for a month. During these times, it is important to be patient and stick to the plan.
Fundamental analysis (e.g. cash flow, news, hype, underlying asset) will always outperform technical analysis. For this reason, we also understand the underlying value of the asset, if any, prior to investing.
We also try to understand the market cycles, read the weekly news and analyze the current economic status.
When using technical analysis, we are using probabilities that are not 100% accurate.
There is never and never will be a technical analysis indicator or combination of indicators that indicate a 100% successful trade.
What we want to achieve is a higher probability that our trade (long or short) will be successful.
Now that we have this cleared up, let’s look at the technical indicators.
The 20, 50 and 200 EMAs (Exponential Moving Averages) are the most important indicators to determine the long-term trend: bullish or bearish. If we don’t know the trend, we can’t know if it’s time to buy or sell.
Bull trend: The EMAs for 20 and 50 periods exceed the 200 EMA
Bear trend: The EMAs for 20 and 50 periods exceed the 200 EMA
Now that we have this information, let’s see how it is applied. Knowledge is not a power until it is applied.
We only enter long after the 50-period EMA crosses the 200-period EMA and after the 20-period EMA crosses the 50-period EMA.
Also, we have to wait and see if we have at least 2 ascending green candlesticks with no bottom wick and above the 20 period EMA.
For short signals the same algorithm, but reversed: 50-period EMA below the 200-period EMA, 20-period EMA below the 50-period EMA, at least 2 descending red candlesticks, with no upper wick and below the 20- Period EMA.
We leave a long entry when a red candlestick closes below the 200-period EMA. By analogy, we leave a short entry when a green candlestick closes above the 200-period EMA.
Let’s look at some examples:
As you can see, I have selected different assets to prove to you that the strategy applies to different markets: stocks, ETFs, crypto, forex and commodities. The assets have been selected at random so I am not inviting you to invest in any of them.
In each screenshot I have given the average profit to loss ratio so you can see that we have more than twice the profit compared to losing trades (ratio> 2).
Disclaimer: I am not a financial advisor and I do not recommend investing in anything as nothing is guaranteed. Everything I write on this subject is for information and educational purposes only. Always research.