Daylight Trading Strategy

Hi everyone,

When I released Roadmap ( https://www.forexfactory.com/thread/...o-read-markets ), I was conscious that it was a strategy which required a fair amount of discretion/judgement.

I still receive many messages from people who are successfully trading using Roadmap, which is great. However, I wanted to also provide one of my other strategies for those who might prefer a more rules-based approach.

Welcome to Daylight.

This is a strategy with clear entry rules, various exit options and no non-standard indicators. I will walk you through how to set up your charts and will provide a template for those who want it.

But first, here's a look at a typical chart.



As you can tell from the chart above, we are using Williams %R but we are using it in a non-standard way. We are actually hiding the normal line and instead applying a Smoothed 8 period MA and a Smoothed 21 period MA to the data.

Additionally, on our main chart, we have a 5 period Smoothed MA and another 5 period Smoothed MA with a shift of 5.

And that's all you will need to get started.

Attached below is a template and in my next posts I will fully explain the strategy, with entry criteria and exit options. I've also attached a link to my Journal, which contains some posts you may find generally useful.

https://www.forexfactory.com/thread/...just-a-journal



EDIT 8/6/21 - TradingView script kindly created: https://www.forexfactory.com/thread/...9#post13580699

EDIT 8/6/21 - Aggressive Hourly Version: https://www.forexfactory.com/thread/...6#post13574046

EDIT 9/6/21 - Dashboard/Scanner kindly created: https://www.forexfactory.com/thread/...ight-dashboard

EDIT 9/6/21 - Aggressive Version - 15m Timeframe: https://www.forexfactory.com/thread/...6#post13576116

EDIT 11/6/21 - Using -50 as Trend Filter (Standard Mode Only): https://www.forexfactory.com/thread/...2#post13579942

EDIT 14/6/21 - Display arrows on chart when WPR crosses: https://www.forexfactory.com/thread/...2#post13582992

EDIT 15/6/21 - Standalone -50 Strategy: https://www.forexfactory.com/thread/...9#post13583849

EDIT 24/6/21 - MTF Dashboard Version: https://www.forexfactory.com/thread/...2#post13598352

EDIT 3/7/21 - ThinkOrSwim Indicators added: https://www.forexfactory.com/thread/...5#post13610915

EDIT 3/7/21 - Fast Moving Average To Enter Trends: https://www.forexfactory.com/thread/...2#post13611262

EDIT 26/7/21 - Multi-Timeframe Analysis to Find Trades: https://www.forexfactory.com/thread/...2#post13634752

Let's look again at the chart I posted previously, but this time with some entry arrows added.



We get a short entry signal when the following rules are met:

1. Red MA above Green MA on main chart and daylight exists between them.
2. Price closes below Green MA on main chart.
3. Red MA above Blue MA in sub-window and daylight exists between them.

Vice versa for long entry signals.

As you can see from the chart, we had two short winners and one long loser. Also notice the period leading up to the first entry. There was no daylight between the red and green MAs and very little daylight between the red and blue MAs. This is what attempts to keep us out of sideways markets.



In the above chart we have 5 entries, with 1 loser, 3 winners and 1 trade in progress.

When it comes to exits, you have various options. You can either:

1. Exit when the red and blue MAs both start to slope in the opposite direction in the sub-window.
2. Exit when the red and green MAs cross again.
3. Exit when the red and blue MAs cross again.
4. Exit when you reach a set profit target (for example, a percentage of ADR or a multiple of ATR).

Each option has advantages and disadvantages so you should establish which suits your trading personality and risk profile. Some of you will prefer to let a trade breathe to catch the occasional big runner, others will prefer to extract smaller profits more regularly.

In terms of stop losses, I take the same approach with this strategy as I do with Roadmap. I do not believe in being taken out by a stop loss. Instead I look to exit manually when I am proven wrong. In this case, any of the exit criteria above could be used to be a sign of being proved wrong.

However, that's not to say we should trade without stops. I believe in emergency stops far away from price. They simply exist as a fall-back if something major happens or if I unexpectedly have to leave my screen for a period of time.

There is also the option of adding to a winner if you want to stack trades. This approach won't be for everyone so I won't go into too much detail now but essentially you are looking to add when you are a certain number of pips/points ahead with the aim of capitalising on a trend you have found yourself in.

I have deliberately posted 15 minute charts as I believe they should be the smallest timeframe you trade this strategy on. You are welcome to try lower timeframes but be warned that the noise will likely reduce your profitability. Higher timeframes should be fine however, if this suits you better.

*Edit* - Indices can be traded profitably on 5m timeframe.

I also deliberately chose the thickness of the lines for the sub-window MAs. This is important when you consider that daylight between thinner or thicker lines would be different.

I don't really trade Forex much these days as I prefer to trade indices, gold or oil. But if you are a Forex trader, you need to be aware of when news is due that could impact the pair you are trading. I would advise being flat before major news if at all possible.

So, there you have it.

That is Daylight.

I will try to post lots of live examples in this thread over the coming weeks but please do feel free to ask if you have any queries in the meantime.

Here's a trade I'm currently in.

The first two arrows are potential entry points if you were awake. The third arrow is my entry, which I took soon after I got to my trading desk.

Hi Laura,
A concise rule based method that is clearly explained. Within the next 2 days or less one will ask for an EA, but I know you already expect that.
I wish you the best with your thread. Thank you for sharing. Best of trades to you.

Update on Gold.

Banked a small profit - not the most exciting outcome but unfortunately I have an appointment this morning and can't monitor the trade for much longer. More trades later.

Ah, a new strat from Laura, this will be exciting to follow

Hello LauraT,

are you watching for Price action or do you only trade the signals with this strategy?

Thank you very much!

Hi Laura
maybe this could be applied to daily bars for low timeframe traders like me?

thanks

Very simple way of trading the trend.... well done LauraT. Will keep my eyes on this

Hi,

It certainly can be used on the daily timeframe. It probably requires smaller size or quicker exits though, to account for the larger swings.

I've attached a couple of daily charts with examples:


On the above Dow chart I've marked a couple of potential entry points but you could have entered almost anywhere in that up trend and profited well. Also notice how the dip resulted in a cross of the sub-window MAs but there wasn't any daylight between them. This stops you from taking a counter-trend short.


On EURUSD I've marked a few potential entry points. Again though, you could in theory have entered in multiple places for multiple trades if you wished. Notice again how the dip resulted in the sub-window MAs converging but no daylight forming between them.

Closed a GU long.

Dow long.

Hi Laura

Want to thank you so much for providing this kind of black-and-white strategy. My brain works best with these kinds of rule-based approaches so I very much appreciate this!

Would you mind clarifying (for those of us using a different trading platform) what periods the different colour SMMA's relate to so I can set my chart up the same way on Tradingview? Also, there is no setting to offset/shift an SMMA on Tradingview. Is there an alternative indicator or period SMMA I can use?

Hi,

For this strategy it's mainly about the signals. However, market structure could certainly influence when you decide to take profit or get out of a losing trade.

Hello Laura,

Thank you for another successful trading system (subscribed),your contribution has been amazing keep safe.

Hi,

The Williams %R is set to 14 and the SMMAs are 8 and 21.

That's a shame about not being able to shift the SMMA on TradingView. Try a 5 and 10 period SMMA instead. It won't replicate the shifted SMMA but it should still keep you on the right side most of the time.

Another Dow long.


A good element of this strategy is that you can jump in and out of the same trend multiple times to bank profit.

EJ short.


I bent the rules slightly with this one as I entered while price was on the green line rather than waiting to see if it closed below.

EU long.

isn't there an offset on moving averages in trading view? My tradingìview has it...


sorry just checked...SMMA hasn't an offset...