First thing, this pattern is not suitable to day traders. It is a trend following system, but the most evolved you will come across. Only read on if you are willing to hold a trade for anywhere from a week to a quarter.
So most trading teachers will show you a similar picture in their courses. It is all you need to know about price movement. They would tell you price is either trending or ranging. You can only trade profitably when its trending.
Then they show this picture to explain the trend; an upmove (impulse move), which retraces to a higher-low then creates a new, higher-high and so on. Every trading system existed plays on a variation of this picture.
A support-resistance mentor would say the first high is resistance, so trade a break of that resistance. Or trade a bounce of that support. So you try that but it doesn’t nearly work; you can never work out where the exact resistance or support are. Additionally, sometimes support or resistance fail causing you massive losses. So you look for another method.
So you meet another mentor and he tells you about RSI. He would tell you when price makes a higher-higher but RSI doesn’t, you should sell as this is a sign of reversal. Besides the fact this is plain wrong and that divergences don’t foreshadow a reversal (they actually confirm the trend). RSI divergences don’t tell you when to exit. Actually most of the time the divergence is completely neglected and price continues to move in the same direction. So you move on to try trendlines, fibonacci, bollinger bands, harmonic pattern or moving averages. Nothing ever works consistently.
So they tell you trading is hard and its money management is all that matters. Well yes money management is very, very important. But those mentors also know nothing and they teach you bits and parts, a half-truth. That’s why their systems don’t work out.
I will show you a trend following system that works. And its not a breakout system, my trend following is much more accurate. All you need is a 20 Exponential moving average, 50 exponential moving average and a stochastic oscillator.
Lets move on…
