by Ellie Taft

I want to show you three sets of entry rules, one for each of the following market cycles.

Market Consolidation

Market consolidation, also known as the accumulation phase, drives most traders crazy.  Market consolidation calls for what I call our “Band Bounce Strategy”.  Most traders don’t have Bollinger Bands set to 1 standard deviation on their charts.  And most traders don’t know about my one-of-a-kind “BB” Band Bounce Strategy.

Whenever you see a choppy sideways market, and you hear other traders complaining about getting whipsawed by one losing trade after another, here’s what you do…

  1. For a long position, watch for the Market to close above the -1BB, (lower middle Bollinger Band) following a day when the close was below -1 BB. 
  2. Then buy at the next open.
  3. Take profits at +1 BB (upper middle Bollinger Band).

Pretty easy!  And the best part is… it’s just as easy to go short when price opens above the +1 BB and closes below the upper +1 BB.  My “BB” strategy is the best way I know to seek consistent profits during periods of consolidation, or when the trend is weak and choppy.

But, whenever a strong trend is in force, “BB” misses out entirely.

Strong Trends

During strong trends nothing is more exciting than watching your profits mount day after day with our “TD” Touch Down strategy.  But, before you consider placing a “TD” trade, take a look at a weekly chart to make sure the wind is at your back.  In other words, make sure the trend is with you.

Checking the weekly trend takes a second to do and is easy.  On your daily chart, click the icon shown below and it will dramatically improve your odds of success:

D1/W1

One quick click and your daily chart becomes a weekly chart.

“TD” enters a trending market on an 8-day high or 8-day low breakout.  To determine the 8-day high and low, count back 8 bars from the current bar and see what the highest high and the lowest low were during that time period.  Like the “BB” Band Bounce strategy, “TD” Touch Down breakout is totally mechanical and easy to do.

  1. Place a “Buy” order 5 pips beyond the highest price the market has hit over the past 8 days, (or the lowest to go short). 
  2. Bracket the order with a protective stop and a profit target. 
  3. Exit on the close of the 7th trading day, if profitable.

I don’t blame you for wondering why we exit on the 7th bar when profitable.  But the explanation is really quite simple… because that’s what seems to work best!

Most trend-following strategies call for a “trailing stop” 1 ½ to 2 ATRs (average daily trading range) from the highest price reached.  The idea is to let your profits run.  But, more often than not, you end up giving back much of your gains in the process.  And that just doesn’t work for me.

I have found that banking profits every 7 trading days, (excluding weekends), is much more profitable.  You can always get back in!

Extreme Reversals

Expect extreme profits whenever you catch the extreme reversal.  Every trend eventually reverses direction.  And that’s when my “XR” eXtreme Reversal steps in.

For “XR” we are going to use our outside Bollinger Bands which are set at +/-2 Standard Deviations.  And again, the entry rules are simple…

  1. For a Sell, watch for the price of an upwardly trending currency to open above the high Bollinger Band and close below it.
  2. Place a “Sell” order 5 pips below the low of the qualifying bar.
  3. Bracket the order with a protective stop and a profit target.
  4. Take profits at the close of the 7th bar if your profit target isn’t hit before then.

Of course, the same four steps work just as well when a down trend suddenly reverses to the upside.  Except then you’d be looking for an open below the lowest Bollinger Band and a close above it.

So, that’s it folks… three easy ways to profit from the three repetitious phases of the market cycle.  The important thing for you to understand is every market on the plant… stocks, commodities, currencies… all move in predictable cycles.  All you have to do is exploit those cycles for steady gains and you can make a darn good living!