Quote from trader333:
Mirager
I am interested in your methodology to see how you can avoid whipsaw. Please post details and screenshots.
Ok here is my version of the system that I have been trading for about 2 years to mostly scalp US Equities. Not sure if it would pertain to Futures or other instruments as well. Only thing is I use area charts instead of candles. I will post with area shots but I can switch it to candles, I just find there is less distraction with area charts but its a personal choice.
Instrument US Equities 5 min 2 day charts.
Indicators.
3 EMA's (9,18,36)
I have used them for years and just like the triple cross method, you probably can get away with just using 2 and they can be MA's but I like the smooth waves that EMA's produce.
CMF (21)
Shows you if the instrument being traded is under accumulation or being sold off. You can tweak with the length to make it longer or shorter to be less correlated or more correlated to the price. Im used to 21 so thats what I use.
Full Stochastic (20, 8, 8)
Good additional indicator of momentum and displaying OB or OS zones. Again you can set different lengths for K and D to make it more or less sensitive to new data.
MACD (12 26 9)
No introductions needed
The rules.
1. Trade same position size never increase or decrease based on your feelings of where its going. I stick with 500 for my current account size.
2. Exit and stop loss. In the following order every time.
A) If position has not moved in any direction or only .02 in
either direction in 10-15 min exit.
B) I never let the position go more than .10 against me.
Mental exit when that hits. (Most of the equities I trade
have even spreads and no wild swings so this rarely
occurs)
C) If A and B are not met then exit when one of the following
occurs. (2 MACD lines begin to merge, Stochastic closes in
OB or OS territory, CMF diverges from price action (price
going up for 3 per and CMF is moving down and vice
versa)
I know thats kind of alot of stuff but those are just the rules that work best for me. A more simple model would be to stay in the trade 10-15 min and then exit no matter what. 85% of time this results in a .06-.14 move in your favor. 10% of time it is a .03-.06 move against you, 5% its a flat trade -commission.
3. Entry signals.
A)
MACD cross above below 0 line is the core, secondary MACD crosses of itself while in + or - territory as long as they are with the general trend (MACD crosses below itself while in - territory or above itself in + territory)
B)
I always avoid MACD signals if it occurs on a large spike up or down in price. (Stock trades in a .05 range all day then has a .10 or .15 gap down. It is easy to spot on area charts because it looks like a cliff. I wait for secondary action when this occurs.
C)
If the close of this spike is also above or below the 3 EMA's I definitely say out. (Price was above the 3 ema's then gaps down big on the open but the 3 EMA's dont budge and stay above each other, good example of this on the QQQQ chart below Friday morning)
D)
Stochastic cant be in OS or OB zone (above 85 and below 15 for me) when 0 line cross or MACD cross of itself occurs)
E)
CMF direction must support the move. It should be - when - MACD line cross and + when +MACD line cross occurs. I will ignore CMF only in 1 situation. The other indicators agree with the move and the CMF is within .10 of its 0 line and trending down. I will enter the trade like normal but if CMF does not follow price I will exit after 10 min.)
That is the whole system. I know its allot of info and seems complicated but thats what works for me. The core is the MACD cross and the other indicators supporting that cross.
Here is a chart of QQQQ for 10/5 and 10/6 Green arrows show entry Red show exit. The first signal on 10/6 I did not trade because of the spike but just to prove a point an entry there would have been at .47 and exit 10-15 min later with no move in my direction would have been at .43-.44 depending on your fill so a .03 to a .04 loss. Other two sig that day were great.
