Professor’s Cane (Support Resistance system)
Everyone find a fine trading plan for forex market.But no strategy is stable for long time.Some strategy works for some time. I still now not find any long time worker strategy. whatever lets find some strategy that i choose.Support Resistance system is one of them.
Tools for Trading:
1. Normal Price chart
2. 50 day SMA of High, Low and Close (50 SMA band actually)
3. Stochastic (8,3,3)
Before going to complete description of the system, we need to know the basic grammar of building a trading system.
1. First Identify, which time frame to trade (For this system the time frame is H1, where I back tested.)
2. Find Indicators that help identify a new trend. ( 50 SMA channel will be the indicator for the trend, slope of the channel tells about the trend)
3. Find indicators that help CONFIRM the trend (Stochastic (8,3,3) will be used to entry of the trade.)
4. Defining risk (Here two type of risk will be taken, initial opening trade and to mange a losing trade. If the initial risk is 1%, for managing the loss trade the risk will be 3%, which means the Managing losing trade risk will be 3 times more than the initial trade)
5. Defining Entry and exit:
1. Slope of the SMA channel is +ve.
2. Price is near or on Support line.
3. Stochastic reading is below 20 and it is increasing.
4. Initial SL will be lower support line. (We will not put any kind of SL there, we will try to manage the trade there.)
1. Next resistance level or when stochastic reading is above 80.
First trade was executed very nicely. The buy point is 1.32085 and sl was 1.31523. when the stochastic become above 80 then it had already gave 1:2 return.
Managing the Losing Trade:
1. At the first trade which was taken short @1.32085, but it had gone in the opposite direction, so we would wait price to reach another resistance level where the stochastic is above 80.
2. The criteria met when price reached 1.32788, where stochastic reading was above 80 and it was near a resistance level.
3. If we cannot find any resistance above the second entry, we would consider 50 pips built in SL. And this is the total exit level with overall 3% risk.
4. As soon as price reach to BE close the 50% of open position if the SMA slope is still –ve or if slope has already become +ve, we will close whole open position @BE.