Our team at Trading Strategy Guides likes to use the trading system to identify a change in market behavior and make a profit from it. It’s important to understand what is and what to use. This will give us more confidence later when taking the trades based on the trading system.
Moving forward, we present the buy-side rules of the trading Indicator.
Step #1: Identify the Three necessary to Draw the lines.
The first thing you need to establish for the trading system is to identify three necessary to draw the lines. For more insights into this topic, check out the what is section.
Since we’re looking for buying opportunities, we need to identify a series of rising .
Step #2: Apply the indicator starting from 1 and move through 2 and 3.
Now, use the three identified and draw the trading system lines by connecting the together. Start from 1 and move forward through 2 and 3.
During this stage, you’ll be plotting the trading system lines. This will map the most important dynamic levels. Once you’ve done this correctly you will see a or formed.
Step #3: Buy at the market at the first retest of the lower support .
With the trading strategy, the price should be contained inside the . In this regard, if we’re looking for buying opportunities, assume the lower support to hold the price for a bounce.
We recommend buying when the lower support is tested.
The next logical thing we need to establish for the trading strategy is where to take profits.
Step #4: Take Partial Profit at the , and Take Profit 2 at the upper Resistance .
The trading system gives you the flexibility to manage your trades in many different ways.
Our mantra is, “Keep it Simple, Stupid.” In this regard, since the core principle of the is that price tends to gravitate towards the , it’s the logical place to take some profits off the table.
We only take partial profits on the because we also want to maximize our profits. This will give the market a chance to retest the upper resistance .
With the trading system, we’re trading in the direction of the trend. So, the expectation is to see the price moving higher and eventually retest the upper limits.
Note: After TP1 was reached, move your SL at BE. We accomplish two things by doing this. First, we make sure that we accumulate profits. And secondly, if the markets reverse, make sure you stopped at BE and don’t lose any money.
The next important thing we need to establish is where to place your protective stop loss.
Step #5: Place the Stop Loss below the lower and add a buffer of 20-30 pips.
The recommended place to hide our protective stop loss is by adding a buffer of 20 – 30 pips below the lower .
Normally, in an uptrend, the support should hold the price above. However, in order to protect ourselves from possible false breakouts, we’ve added a buffer of around 20-30 pips to our protective stop loss.
Note* In a strong uptrend, it’s quite normal for the price to break and trade above the resistance . Inversely, in a strong downtrend, it’s quite normal for the price to break and trade below the support .
Trading Strategy Conclusion
There are many trading strategies that can be built around the trading system lines. They can all be simply derived from the Pitchfork’s trading rules. In order to use this system, you need to understand what is. You can also read our best short-term trading strategy.
is simple to understand because, according to the trading system principles, you only need to know these three rules:
Price tends to gravitate towards the .
When price breaks the there is a high chance it will pull back to retest again the .
When price breaks the channel on the opposite side of the channel direction, there is a shift in market sentiment and the trend can reverse.