Proven entry and exit strategy.
Photo by Maxim Hopman on Unsplash
Originally posted on lifestylemaniacs.com
So you decided to give trading a try. You probably learned the basics; If not, I encourage you to watch some YouTube videos, take some courses, or read a book on this topic. I left some useful links as you can see.
I watched YouTube videos and followed the above course, and there is a lot of information that was beyond me. After 3 years of trial and error, I finally found a minimalist chart design and trading strategy that brought me consistent rewards.
I tested this design and strategy across multiple markets (individual stocks, ETFs, commodities, crypto, forex) and always got an average profit / loss ratio of 2. This means that I made at least 2x more profit compared to losses.
Before we dive into the tools, we must first make a few considerations:
Heikin Ashi 1-day chart
We will always use the 1D Heikin Ashi chart. We will never bother to review the 1 hour or 1 minute charts, nor the 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 granular trading chart at the same time.
Buy: Heikin Ashi green candle without bottom wick
Sell: Heikin Ashi red candle without top wick
Short / medium term investment
We will focus on short / medium term investing because we will see corrections along the way. For example, even though we are in a bull market, we may see a downtrend that lasts for a month. It is essential to be patient and stick to the plan during these times.
Fundamental analysis (eg cash flow, news, advertising, underlying value) will always outperform technical analysis. That is why before investing, we also understand the underlying value of the asset, if any.
We also try to understand the market cycles, read the weekly news and analyze the current economic situation.
When we use technical analysis, we use probabilities, not something 100% accurate.
There is and never will be a technical analysis indicator or a combination of indicators that indicates a 100% successful trade.
What we are trying to achieve is a higher probability that our trade (long or short) will be successful.
Now that we clear this up, let’s look at the technical indicators.
The EMAs (Exponential Moving Averages) of 20, 50 and 200 are the main indicators to determine the long-term trend: bullish or bearish. If we do not know the trend, we cannot know if it is time to buy or sell.
Bullish trend: the 20 and 50 period EMAs cross above the 200 EMA
Bearish trend: the 20 and 50 period EMAs cross below the 200 EMA
Now that we have this information, let’s see how to apply it. Knowledge is not power until it is applied.
We entered a lot only after the 50-period EMA crossed above the 200-period EMA, and after the 20-period EMA crossed above the 50-period EMA.
Also, we must wait and see that we have at least 2 ascending green candles, with no lower wick and above the 20-period EMA.
For short signals, same algorithm, but in reverse: 50-period EMA crossed below 200-period EMA, 20-period EMA crossed below 50-period EMA, at least 2 descending red candles, no wick above and below the 20-period EMA.
We exit a long entry when a red candle closes below the 200-period EMA. In analogy, we exit a short entry when a green candle closes above the 200-period EMA.
Let’s look at some examples:
BTCUSD 1D Heikin Ashi in trade view with EMA 20/50/200 AAPL 1D Heikin Ashi in trade view with EMA 20/50/200 QQQ 1D Heikin Ashi in trade view with EMA 20/50/200 VOO 1D Heikin Ashi in trade view with 20/50/200 EMA GOLD 1D Heikin Ashi in trade view with EMA 20/50/200 EURUSD 1D Heikin Ashi in trade view with 20/50/200 EMA
As you can see, I chose different assets just to show you that the strategy applies to different markets: stocks, ETFs, crypto, forex, and commodities. The assets were chosen at random, so I am not inviting you to invest in any of them.
In each screenshot, I included the average ratio of winning and losing trades so you can see that we have more than 2x more winning trades than 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 the subject is for informational and educational purposes only. Always do your research.