I want to discuss some of the nuances and things to look for when using three diversified trading signal generators in conjunction with each other. Each System can tell a part of the story, and all three can be used in an active market. But when you use three together on the same instrument, you have some extra opportunities for trades, a deeper market understanding, and confirmation.
Trending system: You should start here because their trending system, in particular, can give you a great feel all by itself whether an instrument is actively trading or not. On top of that, it can give you multiple “views” at different bar sizes of just how powerful the particular instrument is or isn’t trading. You should use a larger block size for analysis. This modification will represent a larger view of the market.
Look for a nice smooth move coming into the trend line of the trending system, and then breaking away from it, back towards the trend line, and then away in a beautiful smooth “wave” formation. When you see this, you should then move down to smaller bar size to find entries. Keep in mind “ideal” entries involve a break of support or resistance followed by a pullback to the trending system’s trend line, followed by an entry signal hopefully close to the support and resistance that was just broken. Many people are surprised that a trending system can give some of the earliest trade signals after a support and resistance break, but the stronger the trend, the better chance we have to use the trending system in this manner. Also, a trending system can set the stage for trades on the other Systems. For day trading, this is the “Master System” to watch before taking trades on the other two. Keep in mind a trending system takes a while to “turn around”, so it’s best to use it during an established trend to grab the big move.
Range bound system: A range bound system by design gives you a nice balance between excellent confirmation for a trend trading signal while still being nimble enough to change direction during the daily swings. By itself, this System can be used during trends for identical trade setups that you see on the trending system (breakout of a new support and resistance, followed by a pullback). This approach shows you can get a signal with a shallower pullback after the breakout. Also, during a trend, it regularly offers places to add to winning positions (the trending system does as well but at bigger intervals), which can be great if you don’t have that much room between support and resistance points and want to add to a trade that is already heading there. It does not “read” the trend as well as a system specifically designed for trending conditions, BUT if used in combination with a trending system, it gives you a lot of confidence in your setups. It can also be used to add to the trending system’s initial trades, where the trending system fires the first signal, and then the range bound system is used to add to trades on pullbacks and subsequent signals. A range bound system can also be used to trade reversals after a bounce, pullback and then signal during the trend, but we have a better System for that.
High volatility system (scalping): During the trend we should be looking to use a scalping system to grab the quickest trades after we break through the next support and resistance, right? WRONG! In my experience, a scalping system is deadliest when used to catch COUNTER-TREND trades bouncing from support and resistance, especially the first hit of a major area. Generally speaking, even during a trend, the price will often temporarily reverse when it encounters strong support and resistance along the way, especially from the first contact. The other two systems generally won’t be nimble enough to catch a quick and shallow bounce, but a scalping system can. By itself, we just use a support and resistance tool to identify areas that “bounce” when a trading instrument inevitably hits the next support and resistance area. By using a scalping system with a trending system to determine the trend and the range bound system to add to the chain of trades, the high volatility system can catch those reversals so you can make money in both directions.
Overall, using three distinct trading Systems work fantastically in an active market. By using them together, you can come up with a complete plan of attack from initial entry, to adding to winners, and then catching scalps on countertrend reversals.
Having the right tools for the job is key. Knowing how to use those tools is better. And, using great tools proficiently together inevitably equates to a truly successful trader!
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