Not every strategy is right for every person. You should do your best to understand them and use them yourself in your own trades. Conduct as much research as possible to learn about all the possibilities and options there are in trading. It is also important to note that you can consume all the knowledge in the world, but until you start to apply it you will never truly understand it.
Understand that while some strategies mention specific time frames, do not disregard multiple time frame analysis. You will need to check daily and hourly charts for each and every trade you make to confirm that you are trading with the trend in order to give you a statistical edge. The trend is your friend.
The Trade Continuation Entry (TCE) Strategy aims to buy a currency pair as it dips on a strong uptrend and to sell a currency pair as it rallies on a strong downtrend.
Uptrends are confirmed when we see a series of higher highs and higher lows. On an uptrend the price moves in impulse and corrective waves. An impulsive wave will not continue forever though. After the impulsive wave there is a corrective wave that pulls prices back down. The corrective wave on an uptrend is also known as a dip. This pattern continues until a trend reversal occurs. Your job is to identify these patterns and place a buy order right at the dip before it goes into the next impulsive wave.
Downtrends are confirmed when we see a series of lower highs and lower lows. On a downtrend the impulsive wave will move downward. The corrective wave then goes upward. The corrective wave in a downtrend is called a rally. You are looking to place a sell order at the peak of the corrective wave to catch the next impulsive wave down.
Uptrending Trend Continuation Entry Rules
Here are all the rules for the TCE Strategy on an uptrend:
- The 1-hour chart must be on a clear uptrend.
- Price must find reliable support in the current Swing Low at EMA lines.
- A bullish pin bar, consolidating breakout, or engulfing trigger candlestick pattern should form above the 50 EMA.
- Entry price is neither too far from the current Swing Low nor too close to the current Swing High. Place a buy order at the top of the trigger candle.
- Place a stop loss right below the trigger candle.
- Place the take profit goal at least as far away from the buy order as your stop loss. Your take profit goal for this strategy should be equivalent to the most recent Swing High. If the distance to the most recent Swing High from the buy order is not at least the same distance to your stop loss, the trade is not valid.
Let’s take a close look at each of these rules so that you can get a better understanding of them.
Uptrending Trend Continuation Entry (Long Setup)
Rule #1 — The 1 hour chart must be on a clear uptrend
The first rule of the strategy is that you only want to trade on a confirmed uptrend. This means that prices are making higher highs and higher lows.
Plot the moving averages to observe that the 26 EMA, 50 EMA, and 200 EMA show an uptrend on the 1-hour time frame. Additionally, you should check the daily time frame for an uptrend as well. To reiterate , ensure that price is in an uptrend by checking that the current high is higher than the previous high and the current low is higher than the previous low.
Rules #2 — Current Swing Low at a reliable support
Once you identify the uptrend you will be looking for the most recent Swing Low. In order for it to be a valid setup, you want the current Swing Low to find support in either the 50 EMA or 200 EMA.
Rule #3 — Bullish Trigger Candle
Once you have seen that the moving average has been tested as a reliable support level, wait for the trigger candle to appear before entering the trade. You are either looking for a bullish engulfing pattern, pin bar/ice cream bar, or consolidating breakout pattern. In this example, we have a bullish ice cream bar. It was actually the second Swing Low in this example, indicating that this would have been a strong buy.
Rule #4 — Entry Rule
Before you enter the trade, ensure that the price has not moved too far from the most recent Swing Low and that it is not too close to the most recent Swing High. The most recent Swing High may act as a resistance level. If you wait too long to enter the trade then the price might retrace back down before you can hit your profit target. An ideal buy order would be at the top of your trigger candle.
Rule #5 — Stop Loss Rule
You should place a stop loss order just below the most recent Swing Low. In this scenario the trigger candle was our most recent Swing Low. If we look back, the next closest Swing Low was in a similar zone and both recent Swing Lows touched the 200 EMA.
Rule #6 — Take Profit Rule
You should always set your take profit goal at least as far away from your buy order as your stop loss. When using this strategy you can feel comfortable setting your take profit goal at the most recent Swing High.
As you can see in this example, the take profit order was placed almost 3 times the distance from the buy order as the stop loss would have been placed. This is due to the price of the most recent Swing High.
Downtrending Trend Continuation Entry (Short Setup)
Now we will briefly go over how you can use this strategy to make money when the price of a currency pair is downtrending. I try to avoid a currency pair that is downtrending in general – but it is important to understand how it works. It’s basically the opposite as an uptrending TCE.
First, you want to have a clear downtrend. It’s clear that you have a downtrend when the price action is making a series of lower highs and lower lows.
Next, we want to see that the price is retracing upwards and resisting the moving average. The price should go up to the 26 EMA, fall back down, then test the moving average again but get rejected and come down once more. The first time the price touches the moving average is a test, and the second touch is our confirmation that the moving average is acting as a resistance level.
Finally, we want to see a bearish pin bar/ice cream bar or bearish candlestick pattern forming on the moving average. You should place a sell order below the bearish trigger candle and place your stop loss right above the high of this pattern.
Downtrending Trend Continuation Entry Rules
Here are all the rules for the TCE Strategy on a downtrend:
- The 1-hour chart must be on a clear downtrend. The current Swing High is lower than the previous Swing High, and the current Swing Low is lower than the previous Swing Low.
- Price finds resistance in the current Swing High’s 50 EMA or 200 EMA lines.
- A bearish pin bar/ice cream bar, consolidating breakout or engulfing trigger candlestick pattern is formed below the 50 EMA
- Entry price is neither too far from the current Swing High nor too close to the current Swing Low. Place a sell order at the bottom of the trigger candle.
- Place a stop loss right above the trigger candle.
- Place the take profit goal at least as far away from the sell order as your stop loss. Your take profit goal for this strategy should be equivalent to the most recent Swing Low. If the distance to the most recent Swing Low from the buy order is not at least the same distance to your stop loss, the trade is not valid.
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Written by Edward Gonzales © Crypto University 2021