Trading the DMI with ADX, TSI and EMA (WHEATUSD) Pullbacks

So far, I’ve focused on how to get into the market based on the DMI swap in dominance between the +DI and -DI . Once you’re in or if you missed the original entry, how can you get into a trend while minimizing your risk. As I’ve noted before, I’ve not been able to successfully trade on a regular basis but my hope is to use everything I’m documenting here to change that.

In one of the links that I shared in my first article is a PDF that has some really good stuff on using the PDF to trade breakouts. In it, there is a section on how to trade pullbacks within a trend using a 20 period EMA . In my charts, I use a combination of the 13 and 26 period EMA to sort of do the same thing (I use a range between the two vs. just one EMA ).

Full credit for the strategy is given in the PDF and the basics of it are outlined as follows:
1. The ADX must me moving up and above 20
2. Look for a price retracement to the 20 period EMA . It goes on to note that “usually the price retracement will be accompanied by a turndown in the ADX”
3. When price touches the 20 period EMA (in my case, when it enters the range or touches the 26 period EMA ), “put a BUY STOP above the high of the previous bar”
4. Once filled, enter a protective stop at the newly formed swing low
5. If stopped out, re-enter the trade by placing a new BUY STOP at the original entry price
6. After a successful trade, the ADX must once again turn up above 20 before another retrace

The PDF walks through this strategy as outlined above along with providing some examples.

However, the examples are based on the same time frame as the original entry. I’d like to explore and propose that in a strong trend at the daily level, the 4 hour chart will provide a short term strategy. By applying the same concept to the 4 hour chart as outlined above then you may be able to find points that either provide opportunities to enter into an existing trend, or add to positions you may already have within the trend.

As the 4 hour chart begins to show weakness and a breakdown below the 26 EMA , it’s possible this is an indication that the daily chart will now cycle through the same steps as noted above which would provide an opportunity take profit on existing positions while waiting for the next setup to enter with the trend on the daily chart .

I’ve hi-lited areas on the 4 hour chart for WHEATUSD that fit into this strategy with the current up trend on the daily chart that started recently. Note, that the last area in yellow appears to be breaking down below the 26 EMA signaling that the daily chart may begin to cycle through it's own pullback.

Comment: Adding another market to watch BTCUSD as it could be playing out a similar scenario that Wheat just did (except to the down side.

Very clear system you have there! :) And it caught a nice winner today too! You have an upside target in mind? I'm looking for 6.10 or thereabouts.

mikebiz TheBadPanda
@TheBadPanda, Thx. I'm still trying to piece it together. I didn't take this trade today which shows you how much i'm still learning. As for targets, another thing i'm trying to figure out. I've experimented with pitchfork's and median lines. based on what i currently have, i think 6.0x/.1x seems familiar. what I'm working on more than picking targets is developing an understanding of the lower time frames and when they're showing that the market is running out of steam. So, if I use the daily chart as the trigger, what do I need to see in the 4hr or maybe even 1 hr using the same indicators that tell me to move stops up closer and eventually take profit. I look at it more as using the market price and a couple of indicators to provide the telemetry needed to determine the health of a trend and adjust based on what I see. My overall goal is to be able to take 50% of trend; still not clear how best to do that though. However, I do know that not taking trades based on how I have my strategy setup is *not* a step in the right direction (e.g. not taking trade in wheat based on the 13/26 EMA pullback).
mikebiz mikebiz
@TheBadPanda This is what I have for daily and PF:
@mikebiz, I believe we must trust our system wholeheartedly. I really like how you have yours very well thought out, and that's key! I trade on price action and use the same ideas of HTF trends and LTF trends. A step in the right direction I just doing the analysis and watching the results. Beating yourself up about it wont help. Took me a long time before I trusted my system and started acting on the analysis. I'm glad I did it that way, because now when I take a loss, I don't freak out, just go back to the process of the analysis and do my best :)
mikebiz TheBadPanda
@TheBadPanda, Thx! What you've outlined is my goal.
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