A Simple Trading Strategy

I have been reluctant to share a strategy that may prove to be unsuccessful overtime, but I feel that it has almost everything in place to provide a low risk/high reward.

Rules are hard to explain sometimes, but here they are

1. Only trade in the direction of the main trend

2. Look for an ETF/stock that has moved against the main trend

2A. Only trade daily or 2-hour charts. No exception

3. Not an absolute requirement, but there should be positive divergence at the most recent low

4. Price should advance from the low (wave A) and then decline (wave B) to within 3-5% on the most recent low. Look for the 50% to 61.8% fibonacci levels.

5. If price is within 3-5% then enter a position and immediately set a stop loss at the most recent low

6. Draw a line between the most recent low and the next low (once it forms). Make a channel by passing a parallel line through the most recent high. This will act like a target for the move higher

7. Move stop loss to break even if 5% gain has been realized

8. Exit trade after price hits upper trend line or when move higher equals the initial move higher or if you feel lucky then where the move is 1.618 x wave A

RSX is a good example of a long position that I entered near the 61.8% retracement level.  Entered @ 52.00

RSX 2-hour

Price has not moved to the target of 24.64 but its getting close. Nice profit to be taken here.

I will share more examples in the coming days/weeks.

I call this OnlyTrade3rdWaves.

Here is another example

THD Example

 

 

Chile ETF (ECH)

I mentioned in January that ECH looked to be completing a double zigzag and the 61.8% retracement of the wave 1 would be at 41.30

 

Now move forward a couple of months and the chart looks like this

http://stockcharts.com/h-sc/ui?s=ECH&p=D&yr=1&mn=1&dy=0&id=p52661608283&a=339557695

 

Price broke out from the declining trend line that had 4 touches. Look for a back test soon and then I think ECH could move much higher.

 

Here is a weekly chart which also shows that a nice channel is in place for a move higher.

http://stockcharts.com/h-sc/ui?s=ECH&p=W&yr=1&mn=6&dy=0&id=p58686585541&a=332236066

 

SPX Daily Chart with Wave Count

 

A closer look at the latest wave count from 1560.

http://stockcharts.com/h-sc/ui?s=$SPX&p=D&b=5&g=0&id=p29261114354&a=330774654

 

Could This be the Count????

I have trouble counting waves. There I said it. Not an easy task all the time. There’s the 5 sub waves made up of 5-subwaves all within 5 larger degree waves stuff that can frankly make me pull my hair out. It makes me freeze and often times do absolutely nothing when I see things unfold before my very eyes. I saw the decline to 1738, waiting patiently for a lower low, then I pounced. Put a lot of money in because I was extremely confident that a rally would ensue. Price had dropped 112 points or so, so a 50-60 point counter trend rally seemed very likely. I expected an ABC pattern and then watched a 1738-1756-1788 rally unfold. 1788 was also a 1.618 extension of wave a, so I promptly exited with 50 point profit fully expecting another 5-wave decline. It never materialized. I since put some (not alot) money in at 1809, but most of my money is on the sidelines. NOW WHAT??????

Well, these kinds of things make me want to give up. I feel sadness, regret, anger, and other not so good feelings. I try to come up with some positives. One thing that I have always tried to remember is that price normally moves in some sort of channel and price most of the time stays inside that channel. From the 1422 high (Major Wave 1), there is a well defined upper resistance line that passes through 1687 and 1850. 1687 has the highest RSI value, so that must be wave 3 of 3. Seems to line up rather well with intermediate 3 of Major (3). Major (1) lasted 347 points so Major (3) would cover ~561 points (1.618 extension). This puts us in the 1830-1850 range. We are there. Major (4) could have started or be over, but I do not think so. The chart below shows my preferred count. I think a 4th wave just finished at 1738 and a 5th wave is unfolding. One basic rule I have is that if I cannot draw some sort of channel then I think the count is wrong. Time also needs to be considered. If wave 1 lasts 4 months than wave 5 usually cannot last only 2 weeks. Simple philosophy. With that said, I am still the worst trader on the planet. I tend to not lose money but I never really make much either. I leave a lot of money on the table. Well here is a link to the chart.

http://stockcharts.com/h-sc/ui?s=$SPX&p=W&yr=2&mn=6&dy=0&id=p90384308404&a=336583641

Wave Count from Recent Low

Feb112014 wave count