Trades can be entered after a new trend is already established. There are three low-risk trend continuation entry strategies for short-term trading and swing-trading. The set-ups are identified on the daily chart and the entries executed on the hourly chart or lower timeframes. The profit/loss ratio needs to be 1.5 or more. Proper knowledge of market structure and price action is required.
Inside-Day Trade Entry Set-Up
The price range of an inside-day is within the price range of the previous day. An inside-day is a day of indecision. It is a day when traders do not have strong conviction as to the trend of the market. An inside-day often occurs after a wide-range day when the range exceeded the average range of the prior few days. Inside-days also often occur either after a trend reversal or after a fast move as a brief period of consolidation within a larger trend. Usually, the direction of the breakout from the inside-day is a continuation of the direction prior to the inside-day.
Inside Day Buy Set-Up Rules:
- Only enter in the direction of the trend against the last pivot reversal.
- Enter a buy position, as long as the low of the day prior to the inside-day has not been exceeded, or, on the day following the inside-day, buy at one tick above the high of the day prior to the inside-day.
- Place the initial protective sell stop one tick below the lower of the low of the inside-day or the low of the entry day.
Outside Day Trade Entry Set-Up
An outside-day is a period of range expansion. A market usually continues in the direction of the close of an outside-day. The outside-day entry setup requires the market to be monitored during the day.
Outside Day Buy Set-Up Rules:
- Only enter in the direction of the trend.
- For a buy set-up, if the market first exceeds the low of the prior day without having exceeded the high of the prior day, buy one tick above the high of the prior day.
- Place the initial protective sell-stop one tick below the low of the entry day up to the time the trade is entered.
- Exit the position on the close if the close is below the current day's open and prior day's close. The failure of the close to be in the anticipated trend direction is a negative signal and reason to exit the trade.
Pull Back Trade Entry Set-Up
The Pull-Back entry strategy is based on the observation that minor corrections in trending markets usually only last some three days. The Pull-Back trade set-up enters a trade on minor corrections against the main trend.
Pull Back Buy Set-Up Rules:
- Only enter in the direction of the trend.
- For a sell set-up, the three most recent days must each have higher highs or any combination of two higher highs and an inside-day. Just the opposite for a buy set-up.
- For a sell set-up, place a sell-stop one tick below the low of the prior day once the set-up conditions are met.
- If the market makes a new high, adjust the sell-stop one tick below the low of the prior day.
- Place the initial protective buy-stop one tick above the higher of the high of entry day or the day prior to entry.
- Exit the position on the close of the entry day if the close is above the current day's open and the prior day's close.
Keep in mind, no single strategy is bulletproof, stop-loss strategies must be in place and the profit/loss ratio 1.5 or more. Trading is about probabilities and losses part of the trading-business.