Method: Trading in the same direction as the higher time
frame trend.
Calendar: For trading intraday, always check the news
calendar at forexfactory.com or FXstreet.com for the
daily schedule of news releases. Always exit existing
short-term positions 5 to 10 minutes ahead of those
scheduled news releases.
Charts: Daily and weekly candlestick charts to select
market and direction; 15-minute and 60-minute
candlestick charts for the setup and signal.
Overlays: Horizontal support and resistance levels,
trendlines, and appropriate pivot points.
Indicators: Stochastic (14, 3, 3) and MACD (26–12–9).
Setup: Identify and record short-term trends on weekly
and daily charts for the markets covered on the basis of
the position of current trendlines and the stochastic.
Find markets in which the short-term trends on the
daily and weekly charts are pointing in the same
direction. Markets you need to be cautious about are
those in which the trends on the weekly and daily
charts are moving in the same direction but price is at
or near historical lows or highs (support or resistance)
and in which there is double divergence or more on the
daily chart as measured by the MACD. Once you’ve
selected the markets that fit these criteria, look for
setups and trade signals on the 15-minute chart at or
near support or resistance that are going in the same
direction as the charts with higher time frames. Once
you identify possible trade signals, filter or confirm
those signals with the 60-minute chart. If the trend on
the 60-minute chart already is pointing in the same
direction as the potential signal on the 15-minute chart,
take the trade. If the short-term trend on the 60-minute
chart is not moving in the same direction as the
potential signal on the 15-minute chart but there is an
indication of indecision such as a shooting star or a
hammer and then a price close beyond that candle that
is indicative of a possible reversal and a shift in
momentum such as a stochastic trigger line cross, take
the trade. If the short-term trend on the 60-minute chart
conflicts with the potential signal on the 15-minute
chart, meaning there is no indication of indecision or a
shift in momentum on the higher time frame, do not
take the trade. We also are cautious about entering
trades with multiple divergence shown by the MACD
on the intraday charts that are opposite to our position.
Signals: Trendline violation with stochastic confirmation
on a closing basis and/or a close beyond the high or
low of an appropriate doji (hammer for buy, shooting
star for sell) on support or resistance. The candle to
close below the high or low of the doji or inside candle
is most often by definition a change-of-direction candle.
Exit and Stop: Always place stop just beyond the last swing
high or swing low in the direction opposite to the
position you took. For a buy, or long, position, place a
sell stop below the last swing low, keeping within your
risk parameter: 1 to 3 percent of the account per trade.
For a sell, or short, position, place a buy stop above the
last swing high, again making sure to keep your risk at
an acceptable level. You also can use a 2-ATR stop as
long as the risk on the trade is acceptable to you. Once
you are in the trade, be mindful that you must start to
draw a new trendline that will provide support or
resistance for the trend you just entered. Our entry
signal is the same condition that marks a shift in the
short-term trend. A price close on a closing basis
beyond this new trendline, moving against our position,
also will serve as our signal to exit the trade. If the trade
goes in our direction by the same distance as the money
we’ve risked, we can move our stop to breakeven. For
taking a profit we key off existing trendlines and pivot
points. If you entered the position on a short-term
trendline violation, you should monitor price behavior
as it approaches and tests the intermediate-term
trendline or the next daily pivot point. If it looks to be
pausing—showing indecisive candles—on an area of
support or resistance, take the profit; if you are trading
multiple contracts, take a portion of the profit. If it
closes beyond the intermediate-term trendline, look for
it to trade to the long-term trendline. You can deploy
the same strategy by using pivot points. If the market
moves beyond a pivot level, look for it to move on to
the next pivot level. If the market moves beyond all
existing support or resistance on the chart, continue to
update the trendline created by the current move and
look for the order of operation of the technical
indicators to give you an exit signal. To exit a trade,
look for the same or a similar price action that
prompted you to enter the trade. If you are in a trade
and it does not go in the direction of the signal, you do
not need to wait for your stop to get hit. You can exit
the trade on the basis of a combination of a short-term
trendline penetration on a closing basis and a cross of
the MACD and its trigger line on a closing basis.
A change-of-direction candle, which often creates
trendline penetrations, also can be used to exit a trade.
Keep in mind that the longer you are in a trade that is
not going in the direction of the original signal, the
more your risk will increase. You can always come out
of a trade and go back in if you get another signal.
Source: Mastering the Currency Market: Forex Strategies for High and Low Volatility Markets