February 23rd, 2020
I will show charts of the 5 symbols we are following and theoretically trading for the purposes of this blog. The overriding point is that basic tools and process are all you need to be a successful trader/investor.
We are using a simple moving average crossover system to trigger our trades. As we examine the charts, I will illustrate our system.
The S&P 500
We just completed a trade in this symbol. This is the set up I use:
21 period EMA
8 period EMA
55 period EMA
21 period ROC (rate of change).
We determined trend by looking at the 21 EMA (blue line) is it above the 55 EMA (brown line) we would say we were in an uptrend. We then waited for the 8 EMA (red line) to cross below the blue line and then back above to trigger our trade, which it did at the beginning of February. I then followed that up with a trailing stop which stopped us out at the end of the week with a profit of $209. I had tightened the stop because the high in price was matched by a high in energy (the ROC with the red line in it at the bottom of the chart).
Next chart is Bitcoin. The blue EMA is above the brown EMA, so we consider this symbol to be in an uptrend. Nothing to see here – yet.
As we look at the chart of oil we can see that the blue EMA is below the brown EMA meaning downtrend. So we need the red EMA to rise above the blue EMA and then back below it to trigger a trade.
The Gold chart above is showing an uptrend. We have no trade here either. However we can see weakness coming as the high in gold is not matched by a high in the energy readings at the bottom of the chart. This “divergence” is a warning. The energy readings are able to go back and match price.
Now we have a chart of a currency pair. This one will require a little more explanation when a trade triggers. in the meantime, by our definition, it is in an uptrend.
A few points:
– there are a number of ways to determine trend. We are keeping things simple as you learn
– our trade of the S&P was a probing trade as is our style. We keep our trades small as we seek the “big move”. If the small trades offset each other as we wait patiently, the big move is where we make the money. As W.D. Gann said, all you need are 5 trades that involve the big move to have a fantastic return on your money. The question is, do you have the patience to wait for it. To encourage you, lets take a look at a recent big move.
If you look at the bottom left corner of the chart above you can see the blue line above the green (same as the brown line in the previous chart style). You can also see the red line cross above the blue triggering a trade based on this system. The big move takes on greater significance as we pyramid our position . This means on any push back we take another position. In this case it would occur in December. We would take out a new position and bring our stop to a point just under the push back. This means that we have made some of our profit on the first trade risk free. And, on top of that, Apple was kind enough to warn us that a correction was coming with a divergence between the price and the energy reading at the bottom of the chart.
As we go along and trades unfold, I will explain some of the thinking, but if you would like to get a primer in the form of Book 1 of my Basic Trading series (for FREE), click here:
If you have questions, you can drop me a line at: Charles@bluestonetrading.school or: firstname.lastname@example.org