Well here’s the plan I’ve been testing (live) since last week. See what you think.
Based on my core system is all (which I’m not going to detail here).
Basic plan is simple (and here we are assuming short trades):
Wait for RSI(2) to close above 75 for two consecutive days. Once that’s happened: you simply place sell limit orders at either R3, R2, or R1. Which level is up to you i.e. depends on how “sure” you want the trade to be and how much you’re prepared to lose on a trade. I’ve been selling at R3 and taking profit at R2. Have only lost one trade and the loss was minute. You don’t get many trades selling at R3 that’s true. But when you do get a trade it’s a cinch as price trading past R3 and closing above it are quite something. Also: you don’t hold trades overnight. You close no matter what before the close. Also no point in leaving pending orders when half the day or more has gone by because you don’t want your limit orders to be executed and then there’s not enough time for them to trade to your TP level. And where you TP is also up to you. You could close half a position maybe at the next pivot level and the balance at the next. That type of thing.
Using the above as an example: you trade this day in and day out UNTIL RSI(2) has closed below 30. From that point onward you are then waiting for two consecutive closes of RSI(2) below 25 and then you’re only looking for long trades i.e. buying at S3, S2, or S1.
And so on and so forth.
I don’t use stops by the way so how you do this is up to you. Obviously my position sizes are much smaller (as a result of my risk based position sizing) than were I to place stops somewhere closer to the pivots e.g. above or below R3 or S3. But the risk / reward on these trades (the way I’m doing it anyway) is perfectly acceptable to me anyway.
Now ONE thing new that I tried today:
I was awake at the open at midnight. So I checked to see where the S&P, Dow, NASDAQ, and Japan opened relative to the pivot. All had opened below the pivot. So I placed limit sell orders at the pivot. All were executed. I took profit manually on the Dow and Japan but am currently carrying two losers on the S&P and the NASDAQ. But even if I closed these two out now I would have made a net profit on the trades.
Now to this end I’ve something else that may or may not have merit but will see.
Wilder developed a trading system called the Trend Balance Point System. Long story short one of its components is a very short term, price action based, momentum gauge (not an indicator by any means). It’s actually called the “Momentum Factor”. So far my theory is panning out on paper. And it adds an extra level of comfort to the direction you should take the trades. Will post about this sometime this week I expect (only problem is you will need to manually work out the Momentum Factor purely because it’s just not something you will find on a platform anywhere).