Blue Point Trading Market View – August 14, 2013
Fun with point and figure charts. Have you considered any trading strategies with point and figure charts? Recently I have been finding myself using point and figure charts more and more. Its a very old but tried and tested form of technical analysis. Check out the thumbnail for the basic strategies. I thought I would share some of my strategies that I have used successfully. In the examples below I describe the bull case, but the reverse is true for the bear case. The charts shown are the EUR 1 min 10 tick reversal point and figure charts. I trust you charting package can do this. The following are some of the strategies I am using for various trade set ups.
The break out trade: This is where you look for four lower consecutive highs. When the price action breaks over the last previous high – its a break up and it should be bought on a couple of tick breach of this high. Some times you can let it break up and then buy it on a little pull back. Use a 1 to 1 stop/profit ratio. I use 10 ticks. This appears in back testing to be about a 65% trade. You also may want to consider moving stops to break even once you have cleared 10 ticks and see if you get a big winner.
The counter trend trade: This will vary instrument to instrument as the volatility will determine this trigger mechanism, but look in this case for a bar that is at least 40 to 45 ticks long. Then counter trend trade this spike up with a short. Use a 1 to 1 stop/profit ratio. I use 10 ticks. This appears in back testing to be about a 55% to 60% trade. However, using a fading order management technique, you can increase the percentage return. Also be aware of the time of day and filter out any news event trades that could cause unduly large spikes that could make the strategy invalid.
The forward trend trade: Look for a series of bars that have rising lows, where the bars are fairly equal in length. I would like to see at least 3 to 4 bars of rising lows. Place a buy limit order 2 to 4 ticks above the last low and let the market fall into your limit order. If does not get hit, never mind, there will be many buses leaving the station. Use a 1 to 2 stop/profit ratio. I use 8 tick stop and 16 tick target. This appears in back testing to be about a 65% trade. You also may want to consider moving stops to break even once you have cleared 10 ticks and see if you get a big winner.
Now you might be saying but I trade with MT4 and it does not have point and figure charts. Ahhh but this is not true. There is an EA that you can down load as an indicator that will do this – click here to download. Install like any other MT4 indicator. To make this work, I suggest going into the chart properties and setting the line color property to “none.” and on the chart select the line chart mode. This way you only get the point and figure prices – it’s cool – ;-).
I think you will find that these point and figure charts help you focus purly on price action while respecting the highs and lows of the price trend. Give this a try to let me know how it works for you. Comments and improvements are always welcome.
Daily Market View: (click here for the video)