The Three Keys

The Three Keys to the Grail

This is the 2008 continuation saga from the free system forum.

http://www.trade2win.com/boards/free-systems/20862-simple-moving-average-system.html

The first post on this will be links to the research documents and sources for this method.

Don't worry its a light read (and still being worked on so check back for updates to this post)

I am of the firm belief that if you have an understanding of the historical principles that lay behind this method it may be easier to see where I'm trying to go with this with the most simple, easy method of entering a trade I can devise to date.


The First Key

This is founded on the principle of tight stops and a trade that will fly in your favour from the off.

The Second Key

This is founded on the principle of the bouncing ball or how to find the point where momentum stalls and falls back before bouncing up again.

The Third Key
This is the trigger, no method will work well without a specific trigger to get you in a trade at the precise point that will alow the elements of key one and key two to come to together in a seamless entity.


Key One

This can be found on this site, but I will quote from an original source

How To Trade In Stocks
Jesse L. Livermore
1940
first edition

"When a speculator can determine the pivotal point and enterpret the action at that point, he may make a commitment with the positive assurance of being right from the start ...fast and straight movement almost invariably occured after such points were past"




Key Two

Which is the basic foundation of the method, already done to death by myself.

Weekly Trading Education Article

"The 5-period SMA almost acts as a center line or balance point, and, when the line is broken to either side, it is a possible entry or exit point in the market"

Key Three

The trigger, this was developed by me, with pm assistance by Splitlink, thanks mate :clap:

The practical theory of the three keys will be the next post, showing the method rules in full and a chart example so you can follow it in the market next week.

The Set up rules and Chart

First we will set a chart up so you can see what's going on

1. Open an hour chart of FTSE

2. Set a 5 period simple moving average and set colour to blue

3. Set a 5 period simple moving average and set colour to red dotted move this average to a vertical shift of +0.05%

4. repeat 3 with a -0.05% vertical shift

thats the chart set


Rules of Trade Entry

basic trade entry is simply reading off the dotted line and entering this into an order on your trading platform

1. Longs are read off the top dotted line

2. Shorts are read off the bottom red dotted line



Stops The Important Bit

Stops are tight if the trade doesn't go our way from the off it is scratched straight away. close to zero as is possible if the trade doesn't run our way from the outset it will be real easy to spot if the trade is not right ...stop it out.

Some platforms allow naked no compulsory stops eg compulsory and IG (so they say ?)

Some have compulsory auto set stops like capital spreads

you will have plenty of time to set your stop away from the action this is recommended in case the platform goes down and is highly recommended as a disaster stop min distance away as allowed by the platform.

your main stop is is your mouse ...if in doubt stop it out!


Now the important part is out the way let' look at the nitty gritty of trade entry

there are two methods of taking the trade

1. take a directional trend trade based off the direction of the sma

2. let the market and its participants show its hand first then take a trade with them.

charts to follow showing examples which will show this simple method in action

and a trade taken on the ftse on the 2/1/08

all to follow shortly stay tuned

Here's an example trade made on the FTSE it shows two examples of trade entry with tis method

The Chart FTSE 2/1/2008

market and participants show their hand

7.00am bar breaks to the upside signalling a long

8.00 am bar opens in the bottom of the band zone, this looks good for a position long you read off the upper dotted line in this instance its 6434 this is participants as an order and we wait for the price to come to us and weare triggered long ...pow we are i a good trade.

the next example was done in realtime on the capital spreads demo!

14.00 pm bar looks bullish we haven't close below the 5 sma since the long from this morning.

15.00 pm price is diving the 5 sma turnes over, price reaches the sma and stalls momentarily at equilibrium giving you plenty of time to read off the short (lower band) and enter the order into the trading platform in this instance you would have entered 6485 as the point to go short, aftera bit more sideways movement ...pow down it goes triggering you into the trade that is from the off a good un.

Capital Spreads is pleased to confirm that a demonstration order has
been successfully created:

Sell 10 of FTSE 100 Rolling Daily at 6485 goodtil Cancelled (Order id
1577084)

Capital Spreads is pleased to confirm that the following demonstration
trade was successfully executed:

Account # : 6648
Ticket # : 2152822
Market Name : FTSE 100 Rolling Daily
Stake : 10 £
Action : Buy
Price : 6444
Market Expiry : 16 Feb 2015 16:30
Trade Executed : 2 Jan 2008 15:28

The above trade has closed/part closed the following positions:

This position was closed
Trade no : 2152546
Created : 2 Jan 2008 15:05
Amount : 10 £
Action : Sell
Price : 6485
P&L : 410.00 £

Total Profit/Loss : 410.00 £

more exampes if you require them

hope you like it ...now go check it out and go take on the market and win

Interesting. Never knew you could do that with MAs.

shadowninja said:

Interesting. Never knew you could do that with MAs.

Click to expand...

You haven't read my ramblings on here then have you

I intend to show on this thread that a lot of stuff written about ma's and their lag is wrong. That they are right up to the current moment in what they show in terms of identifying price action and understanding it. well thats what I hope to be able to show and prove in further detail later on.


Talking of which, thank you to the person that rated, thats the first thread rate I have ever received

ignored yes, often. Not even a single star for terrible.

Thank you :clap:

good stuff, LM.
amazingly, I also the 5-MA channel idea on one of my charts, but use a 5-MA of the Lows and another of the Highs. (however, I only use it for 30-mins or higher TFs)
But, being a bargain-hunter, look for price to get to the Low-channel for Buys, and High-channel for Sells.
its a set-up I dont use that often anymore (wasp variant), but just goes to show how different people can use one thing in different ways.

How do you ensure that you dont get whipsawed, as I reckon on the 5-mins you really need to have a sense of congestion? etc.

Lightning McQueen said:

...

more exampes if you require them...

Click to expand...

Yes please. Arrows marking (the open of) the candle of entry & exit would be an added benefit also!

trendie said:

good stuff, LM.
amazingly, I also the 5-MA channel idea on one of my charts, but use a 5-MA of the Lows and another of the Highs. (however, I only use it for 30-mins or higher TFs)
But, being a bargain-hunter, look for price to get to the Low-channel for Buys, and High-channel for Sells.
its a set-up I dont use that often anymore (wasp variant), but just goes to show how different people can use one thing in different ways.

How do you ensure that you dont get whipsawed, as I reckon on the 5-mins you really need to have a sense of congestion? etc.

Click to expand...

Thanks trendie, most kind words indeed, thank you

I will show the whipsaw avoidance feature at a later date, as you say most important. I have not as I have said in the past when talking of this experienced whip and if you track me back I have been on this path since 2006 although most say that it will be whipped to death it is not the case because of the price action of the entry.

and thats all I have given so far the entry rules and stop rules.

hope that makes sense

cheers

don

JTrader said:

Yes please. Arrows marking (the open of) the candle of entry & exit would be an added benefit also!

Click to expand...

no candles jt, this is a candle free zone, price bars only please

sure, it will have to be later, I will record a high time frame chart and a 1 min chart to show the price action up to the points of entry and after with arrows in a blow by blow account, that ok for you

Lightning McQueen said:

I intend to show on this thread that a lot of stuff written about ma's and their lag is wrong.

Click to expand...

The stuff you read so frequently about lag makes me chuckle. Looking forward to this thread...

jj

Mathemagician said:

The stuff you read so frequently about lag makes me chuckle. Looking forward to this thread...

jj

Click to expand...

Abbsolutely. A trade failure tends to be blamed on a lag if the trade fails. Otherwise the right MA will get you into a winner early doors :clover:.

I quite like MAs. Ok, I can't trade as many times as some people do... maybe one or two positions a day max (esp given the large spread IG offer) but they do offer a more relaxed style of trading. (I've done the heart-in-mouth trading thing and while the potential to earn a lot of money quickly was there, it was too much stress. 5 minute binaries, anyone?)

shadowninja said:

I quite like MAs. Ok, I can't trade as many times as some people do... maybe one or two positions a day max (esp given the large spread IG offer) but they do offer a more relaxed style of trading. (I've done the heart-in-mouth trading thing and while the potential to earn a lot of money quickly was there, it was too much stress. 5 minute binaries, anyone?)

Click to expand...

This is a good relaxed style ninj, not difficult to learn as is simple as simple can be.

No stress as it shows where to enter the market at the precise price to enter and we wait for the market to come to us.

No stress with stops as the rules state if the trade doesn't run, stop it out at once.

An uncluttered chart will promote price action learning.

As you have said yourself access to the market is cost free on a demo account to play, a route I recommend.

The only cost is the deposit required to open a spread bet account to access the charts in the first instance, so totally accessible to newbies and oldies alike.

Thanks for opening the debate mate :clap:

Have been asked about the vertical shift.

Here's a screen shot of the vertical shift "adjuster" it is accessed by right clicking on the moving average and selecting "settings moving average"

moving av 1 is the 5 sma ....red solid set to next width up

moving av 2 is a 5 sma shifted up 0.05% ...red dotted

moving av 3 is a 5 sma shifted down 0.05% ...red dotted

Also note on the screen shot 3/1/08 & 4/1/08 FTSE with good trade setups.


Just as an aside could anyone who maybe following this confirm what SB they can do this with please.

So IG charts are ok, CMC? CS? I know fins can't cope with charts supplied by useless charting inc.

Lightning McQueen said:

Have been asked about the vertical shift.

Here's a screen shot of the vertical shift "adjuster" it is accessed by right clicking on the moving average and selecting "settings moving average"

moving av 1 is the 5 sma ....red solid set to next width up

moving av 2 is a 5 sma shifted up 0.05% ...red dotted

moving av 3 is a 5 sma shifted down 0.05% ...red dotted

Also note on the screen shot 3/1/08 & 4/1/08 FTSE with good trade setups.

Click to expand...

Hi LMQ

i know i've already mentioned it, but it would be really useful if u did mark the entry/exit "bars" on your screenshot with an arrow :|.

Cheers.

JTrader said:

Hi LMQ

i know i've already mentioned it, but it would be really useful if u did mark the entry/exit "bars" on your screenshot with an arrow :|.

Cheers.

Click to expand...

I have a new pc which has a snipping tool for screen shots, I dont see a drawing package as yet, I will look at that today for you jt

ok done that, that ok for you? bit messy sorry

just checked. CMC has vertical shifts for their MAs.

just occurred to me - I use 60-EMA channels on my 5-mins, which relate to 5-MA on 60-mins! :cheesy:

Lightning McQueen said:

I have a new pc which has a snipping tool for screen shots, I dont see a drawing package as yet, I will look at that today for you jt

ok done that, that ok for you? bit messy sorry

Click to expand...

Yes thanks LMQ.

It just makes following a thread, that bit easier/quicker for us lackies .

trendie said:

just checked. CMC has vertical shifts for their MAs.

just occurred to me - I use 60-EMA channels on my 5-mins, which relate to 5-MA on 60-mins! :cheesy:

Click to expand...

Does this mean that you think this has some legs then big t :?: thanks for the CMC update

From your posts I know you are trading full time :clap:

JTrader said:

Yes thanks LMQ.

It just makes following a thread, that bit easier/quicker for us lackies .

Click to expand...

Yes, good point, it makes it more accessable to people a lot more quickly ...thanks