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We know that the definition of a trend is higher highs and higher lows for an up trend and lower highs and lower lows for a downtrend. So an up trend is broken when the last low is broken and a downtrend is broken when the last high is exceeded. My method is simply to buy the breakout of the most recent high and sell the breakout of the most recent low. In order to be able to do this we need to be able to define a high and a low. In this approach we define a high as being a bar (in any time frame) that has two lower highs before it and two lower highs after it. So we will only know if a bar is a high bar after at least two more bars have formed. Similarly a low bar has to have two higher bars before it and two higher lows after it. Figure 30 54 Figure 31 The two bars in the diagram above have equal lows and as they have two higher lows before and two higher lows after, they form a low bar. So when a high bar has been formed I place a stop one tick above the high of the high bar (in the FTSE I round this to the nearest point, so if the high is 4543 or 4543.5, I place a buy stop at 4544). When a low bar has been formed I place a stop to sell one tick below the low of the low bar. 55 I will take you through the first few trades in the FTSE on August 2002. Figure 32 In figure 32, the red bar is the first low bar. So once this bar has formed I place a sell stop to sell one contract at 4211. 9th 56 Figure 33 A couple of bars later a high bar is formed (red bar, figure 33), so I place an order to buy one contract for 4267 on stop. I currently do not have a position, but have both a buy and a sell stop in the market ready to get me in when the market makes a move. 57 Figure 34 |
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