I like simple and this is about as simple as it gets. This is using a daily time frame.

Moving Averages are some of the oldest trend trader tools. These averages used to be calculated and drawn by hand, but since the advent of the computer, it is done in an instant.

Steps for Entering Bullish Trade (long)

1 – Once the price closes above the 10-day Exponential Moving Average, this triggers a potential price reversal and trade entry.

2 – If the price closes above the 10-day EMA for a total of 3 days look at RSI for confirmation.

3 – Enter a trade on the 4th day and if RSI has confirmed the trade by crossing 20.

4 – Exit when RSI crosses 80.

Pulling back on this chart shows that we could have traded the trend numerous times both long and short.

Steps for Bearish Trade (short) is the opposite of above

1 – Once the price closes below the 10-day Exponential Moving Average, this triggers a potential price reversal and trade entry.

2 – If the price closes below the 10-day EMA for a total of 3 days look at RSI for confirmation.

3 – Enter a trade on the 4th day and if RSI has confirmed the trade by crossing 80.

4 – Exit when RSI crosses 20.

Reminders

  • We are not trying to the time top or bottom of a trend. We want to catch only part of the trend.
  • Do not fight the trade if it goes against you. There is no guarantee that the trend will continue, especially if news is released after hours affecting the stock price.
  • The stock may have pullbacks. As long as it remains on the correct side of the 10-day EMA that you are trading, you should be ok.
  • If the 10-day EMA crosses the 50-day MA this may be a continuation of a strong trend. If it crosses the 200 day this is usually a major trend reversal.

Categories: Rules