1. Get in on a 20-bar breakout
2. Before reversing the trend using the 20-bar breakout, there must be a losing trade in the opposite direction.
3. Always enter on a 55 bar breakout
4. (subjective) If the market is sideways, use a 55 bar breakout
5. Once there is a profit in one direction, you can continue to trade in that direction, but to trade in the opposite direction, there must first be a loss.
1. On the day of entry, use a 1/2 (Average True Range) ATR stop. If the trade gets stopped out during the intraday trading, then get back in if the intraday market gives a new signal (makes new lows or highs).
2. Use a 10 day trailing stop
3. The day after the entry, use a 2 ATR protective stop. Sometimes the 10 day trailing stop is too far away. The 10 day trailing stop assures you will not be risking more than 2-ATR on a trade (except when there is a gap open against your trade).
4. When the trade is at a 2.5 ATR profit, move the protective stop to breakeven.
5. Once the 10 day trailing stop or the 2.5 ATR rule moves the stop to breakeven, start using a wider trailing stop of 20 bars.
6. Once you are ahead by 10 ATR, use a 3 bar pivot as a trailing stop and the 20 bar breakout as a trailing stop.
1. Enter additional positions at a 55 day breakout, provided the protective stop on the first positions have been moved to breakeven.
2. After a big profit of 10 ATR or more, do not trade in the opposite direction for 45 bars using the 20 bar breakout method. Use the 55 bar breakout instead.
3. Wait for a sideways market to start trading and get in on a 55 bar breakout.
Money Management Rules
1. Do not risk more than 1% of your account per trade.
2. Do not expose your account to more than a 2 ATR risk at any time.
3. Use fractional entry technique
4. If in one trade, wait for that trade to be moved to breakeven before adding any new trades.
5. Trade the strongest commodity within a complex, such as grains and currencies.
6. Trade when the volatility shrinks. When the volatility shrinks by 50%, it allows more contracts to be used for the same dollar risk.
Frequently Asked Questions
Q. How many periods for ATR?
A. The ATR is based on a 10 day average of the ATR
Q. Explain fractional entry technique.
A. Enter 1/2 to 1/3 of all contracts initially. Once the trade moves to breakeven, buy/sell the next 1/2 or 1/3 of the contracts. Most losing trades are losers from the start. This method reduces risk and allows for maximum profits in a long term trade.