Good day everyone, System wanted to let all the readers of our blog know that the last two articles and videos about putting together some true the best short term trading strategies received wonderful reviews from our readers, and I wanted to thank everyone for that. This is the last part of the series and I will go over the stop loss placement and profit target placement system our 20 day fade strategy that I have demonstrated during the last 2 days.
If you have not read the articles or seen the videos there is a link to both below. The best number was near 90 days. This exercise demonstrated how increasing your moving average or your breakout length from 20 days to 90 days can increase your percentage of profitable trades from 30 percent profitability to about 56 percent profitability, this is huge.
On Tuesday, I demonstrated how we can take a method that has terrible winning ratio and reverse it to provide a very high percentage of winners compared to losers. I took the 20 day breakouts which yielded a terrible winning ratio and reversed it. Instead of buying 20 day breakouts we range fade them and do the same to the downside. I also system a few filters to help increase the odds even further.
The method is called the 20 day fade and today I will cover the stop loss placement and the profit target placement for this strategy.
I highly recommend you pay attention because I find this method to provide about 70 percent win range loss ratio and performs better than the average of trading systems that sell for thousands of dollars. The 20 day fade remains one of the most trading and one of the best short term trading strategies I have ever traded, and I have traded just about every strategy you can imagine. The ATR indicator stands for Average True Range, it was one of the handful of indicators that were developed by J.
Although the book was written and published before the computer age, surprisingly it has withstood the test of time and several indicators that were featured in the book remain some of the best and most popular indicators used for short term trading to this day. The sole purpose of this indicator is to measure volatility so traders can adjust range positions, stop levels and profit targets based on increase and decrease of volatility.
The formula for the ATR is very simple: Wilder started with a concept called True Range TRthat is defined as trading greatest of the following: Current High less the current Low Method 2: Current High less the previous Close absolute value Method 3: Current Low less the previous Close absolute value One of the reasons Wilder used one of the three formulas was to makes sure his calculations accounted for gaps. When measuring just the difference between the high and low price, gaps are not taken into account.
By using the greatest number out of the three possible calculations, Wilder made sure that the calculations accounted for gaps that trading during overnight sessions. Keep in mind, that all technical analysis charting software has the ATR indicator build in. However, Wilder used a 14 day period to calculate volatility; the only difference I make is average a 10 day ATR instead of the 14 day.
I find that the shorter time frame reflects better with short term trading positions. The ATR can be used intra-day for day traders, just change the 10 day to 10 bars and the indicator will calculate volatility based on the time frame you chose.
Here is range example of how the ATR looks when added to a chart. I will use the examples from yesterday so you can learn about the indicator and see how we use it at the same time. Before I get into the analysis, let me give you the rules for the stop loss and profit target so that you can see how it looks visually.
Make Sure You Know Exactly What The 10 Day ATR Equals Before Entering The Order. Subtract The ATR From Your Actual Entry Level. This will tell you where to place your stop loss level. In this example you can see how I calculated the profit target using the ATR.
The method is identical to calculating your stop loss levels. You simply take the ATR the day you enter the position and multiply it by 4. The best short term trading strategies have profit targets that are at least double the size of your risk. Notice how the ATR level is true lower at 1. The volatility decreased and ATR went from 1.
Use the original 1. If you are taking long positions, you need to subtract the stop loss ATR from your entry and add the ATR for your profit target. For short positions, trading need to do the opposite, add the stop loss ATR to your entry and subtract the ATR from your profit target.
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