Trade Plan: Dead Cat Bounce As you heard us write before, we have three basic types of indicator groups in the Blue Point Trading eLearning framework. These are; “price derived,” “price patterns” and “support/resistance (sometimes called prices levels). Click here for more details of this and more. When discussing with a trader recently in a Trade Plan review, when we see a Trade Plan that uses “price derived” indicators this generally raises a red flag. So here is a Trade Plan suggestion that uses a “support/resistance” indicator type that may help you.
Description: The idea of this Trade Plan is catch a break of a recent swing high/low in a trend following pattern. We suggest that this be used on a 15-minute or a 1-hour chart and a 20 period moving average (MA). We shall discuss the Long case here but the inverse is possible for the Short case. The Trigger is set, after a recent swing low is broke and we get in on the break after a Dead Cat Bounce occurs once broken. Please follow along with the thumbnail graphic and watch the video below or by clicking here.
Trigger: A 25% retrace after the break of the most recent low to the last swing high for Entry #1 and for Entry #2 a 50% retrace of the same kind.
Filter: Trade in the direction of the 20 MA.
Order Management: The Stop is the last swing high. Target #1 and Target #2 will be set to a 1 to 1 PSR (Profit Stop Ratio). With the advance scale in strategy, this will raise the overall PSR to 1.5 to 2 to 1. We suggest a market order for Entry #1 and limit order for Entry #2 once Entry #1 has executed.
I will let you work out the details from our material on how to work the two order entry from our advanced order management techniques ideas. Give this Trade Plan a look and see if you can make it work and/or improve upon it.
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