4H Trading Setup (Sto+MACD+TL+SK=?)

(Revise at 03-24-08)


Intro

This is the systematically strategy basically design for 4H chart. I personally don’t like to spend a lot of time to read the chart. I ever tried to use Day trading style and Week trading style, but I found out 4H trading style is the best.

I only read the chart twice a day, and the position usually take no more then a day to reach the target. Sometimes, I only read once a day at night, then I place the trade and go to sleep. From my trading experience, I had successfully double my live account twice by using this strategy at Sep-Dec, 2007. Because of switching to the other trading concept, I experiences badly draw down from Jan-Mar, 2008. As the result, I decided to focus at this successful trading strategy once again.

If you are still looking for new strategy or new knowledge to learn, I wish my information could be a part of your reference in your trading journey.

To know more about me, please visit my profile page for more detail.


Indicators

For the indicators, I use MACD 8/17/9 and Sto (Stochastic) 8/3/3 only.
The setup number was referring from the DiNapoli Indicator Setting.

Also, I plug in the Tom Demark Trend Line indicator to apply the trend line more easy.

Those indicator files will attach at the end of this thread.


Fibonacci Tools

1. What is SK? (Super Kluster)

SK is considering the price’s strong support or resistance level that formed from two different Fibonacci Retrace of 38.2 and 61.8 ratio.
SK only uses 38.2 and 61.8 ratio from the Fibonacci Retrace tool, and whenever two different Fibonacci Retrace ratios that cluster together with 38.2 and 61.8, it consider a strong support / resistance level. We call it SK (Super Kluseter) (1)

2. Target use

I use Fib Ext for my target reference, and they are fib ext 61.8/100/161.8


Risk Calculate Sheet

I will attach the spreads sheet I use when I calculate my risk / wining ratio at the end of this thread. The explanation of how to use it will explain later.


Setup

I will use up trend as the example when I explain the setup.
In downtrend, simply change the info reverse. (oversold to overbough....etc)

In Uptrend


1. In UPtrend, look for 4H Sto oversold situation by scanning through all the pairs.
(Default Sto line is 76.4 / 23.6. If price reached consider a good setup qualification. Most of time, my sto will hit 0 / 100 line. )

2. Once 4H Sto oversold situation found, confirming that Day and H chart’s MACD direction are up. If Day or 4H MACD contain MACD Divergent, DO NOT TAKE THE TRADE.
(45 degree angle and parallel situation consider a good setup qualification.)
(If Day MACD stick together or cross down, there must be SK, 38.2, 61.8 AND Trendline hold the Price)
(If 4H Sto is only 50%-60% oversold situation, do not take the trade, b/c there might be a deeper retrace that might against your position.)

3. Confirm Day Trendline if it is holding the price as UPTREND.
(If price break, it must hold by SK or 38.2 / 61.8 fib ratio)

4. Draw the Fib retrace in 4H chart and find out is there SK exists.

5. If there is no SK, DO NOT TAKE THE TRADE.

6. After confirming it is a good setup, draw the Fib ext from previous swing low to the current high, then to the current low to get the fib ext 61.8 ratio for the target price.

7. Before taking the trade, draw your stop out at current low or most closest 61.8 fib ratio. Then draw the target out at fib ext 61.8. Then, we will go to our risk control spread sheet.


Money Management

This session will explain how to use the spreads sheet.

I will use my current success trade, EURAUD, as the example along the explanation.

In the picture EURAUD, after we confirm the setup, stop and target, it is time for us to calculate our risk before we take the position.

If open at 16550 / stop 16453 / target 16680

Before we type in our number in the sheet, we have to do some default setting.

In the sheet, it includes all pairs that InterbankFX broker provides. Total are 19 pairs.
I already use default setting as trading in micro size acct, which contract is 100, leverage is 1:200, and all the spread in each pair, then divide by 100 from the regular pips value will gives you the value for micro pips value.

For example:

EURAUD spread is 7, 1k sizes is $1 per pip value. To calculate micro, take $1/100=$0.01. So, $0.01 is our micro pips value.

First, type in your account balance. Now, typing in the open / stop loss / target price into the sheet.

Second, you will get number shown in Profit and Loss. Retyping those number into the second Profit and Loss cell.

Third, you will get 0% shown in the Actual Risk from the bottom.
This mean to take this trade in micro size lot will only cost you 0% of your account balance. I do not suggest go larger then 5%-10%.

In the Max Lot, it tells you the largest lot number you can trade, then you can customize the number in the Lot cell.

For example:

I change Lot cell from 1 to 24, the actual risk I got is jump to 7%.

Forth, in the R/R, it automatically tells you that your risk and profit ratio is 1 : 1.34.
As the result, this is a very good trade after all.

Fifth, in the Long and Short cells, because it automatically adds the pairs’ spread into the original target and stop price in there, so it is helpful to use it in order to have more accurate stop and target in place.

Last thing I want to point out is below the EURUSD, you will see the total risk, total profit area. This area just simple add all your trade together and give you the total view of your risk, profit, ratio, and risk %. This only apply when you take trade in more then one pairs.

But Risk % is depends on your confident. Due to my account balance is small, I can accept less then 10% per trade, but if I take more then 3 pairs, it will cost me 30% from my acct. In this case, I still accept the risk. But one day, this risk will getting lower and lower once your balance growth.
P.S. Once the contract size change, remember to update margin, pip prices and pip value.


Rules and Condition

As a trader, we always need to prepare for the worst.
I list all the rules and condition from above information into the list for you to remember.


Rules


1. 4H Sto much in oversold(long) / overbought(short) condistion

2. MACD in both Day and H chart much in same direction. (long=up / short=down)

3. Do not trade if Day or 4H found MACD divergent.

4. Day Trendline must hold the price, and if price break, it must hold by SK or 38.2 / 61.8 fib ratio.

5. Price must not get close beyond 61.8 ratio.

6. Do not Risk more then 5%-10% from your account balance.

7. Try to keep your R/R ratio more then 1:1<


Condition

1. Close the trade if 4h oversold become overbought.

2. Close the trade if H/Day macd crossover.

3. Close the trade if trendline break.

4. Close the trade if it didn’t close after 8-16 hrs.

5. Close the trade if target almost reached or you had satisfied the result.

6. Close the trade if its almost reached weekend or Holiday.

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Reference

(1) SK information, Neal Haught, DiNapoli.

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ok, enough explanation.

Following pic will show you the setup by pictures.
I will post my recent trade very often.
Feel free to come back and check any update trading opportunity.

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How do you like the system?

Kindly give me a vote at the up right hand corner said "Rate Thread"

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Who the hell is SK?

The idea of Fib confluence was Joe DiNapoli's idea and I'd bet he was doing it way before this guy. And DiNapoli's book cost $160. What did you pay to learn this from this SK guy?

Thx for the strategy. I appreciate traders who post their strategies it is a good sign that they are doing well. But personally I don't get into strategies that are complicated and require many indicators and more concentration. I prefer keep the things simple, I use a much more simple strategy that rely on 4H and 1H for confirmation and on breakouts.
Thx again for your strategy it is very good.

Joe Chalhoub

thx for the reply.

im understand and acknowledge that SK (super kluster) is the idea from DiNapoli. B/C Fibmaster, Neal Haugh, sure gives lot of credit to him.

The point I post is that I learned this SK trading style from Neal, and for sure he is one of the expert at fibonacci trading.

Anyway, I only use a part out from it. For the complete strategy, pls visit his site. www.fibmarkets.com

actually u are over look the strategy.

this only use sto and macd indicator plus fib and trendline tool.

i will post new opportunity online when i found one.

position result from the time i post my strategy.

here is the pic

classic setup from one of my trade result

Sounds great.

What was the win/loss ratio, expectancy and maximum drawdown of the system?

when the first time i use the system at last sep to dec, draw down is about 1 of every 5-6 trade. draw down will not be more then 7-10% of acct capital each trade.

but result still acceptable. i double twice of my acct within 4 month.

regarding the win / loss ratio, it is for your reference b/4 u open position.

always use profit / risk = the percentage.
this percentage is place as risk 1: profit percentage.
usually need to be 1:1 or better. if less then 1: 1> will not consider a good trade.

3 position open tonight.

potential profit 232 pips
risk 229 pips

ratio is 1:1.01

total risk percentage of acct is 18%

here comes the result ^^

nzdjpy update: due to d macd had cross up, i closed my short position and take some loss.

rest of trade works out pretty good ^^

Can you post the indicator you are using ?

heres are the macd, tdtl indicator.

default macd doesnt looks right. so i post the update one IBFX provide.

i think sto is in the default indicator part. just open it and set to 8/3/3.

Thanks.

When drawing your fibs, do you have an objective method for determining which swing highs/ swing lows to use?

You can get whatever retracement you want to see depending on how you draw the fibs.

thx for posting.

first, i want to point out the swing high or swing low was prefer from the rule of tom demark trend line's swing rule.

I attach the pic along with this reply. I will explain along with the pics.
this is the trade i did last nit. i use this pic is b/c there is sk in there.

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in the pics, we see there are 8 swing lows that point out in red dot by the tom demark trendline indicator automatically. there are from number 1-8.

first, i always draw the swing from the prvious low (5) to the current high (7).

second, i will go to the previous most obvious swing low before 5.
that is 4. also, remember to pick the latest one, and 4 is the last swing low show in the same level 13640.

third, I will go to the previous most obvious swing low before 4, and that is 2.

at this piont, u might want to ask, how about 3?

this is how i do. once i got the swing 2 to the 7, i will realize there is one in the middle of 2 and 4.

do i take 3? here is the rule. if the 3 is 50% b/t 2 and 4, i will take it. otherwise, if it close to 4, i will skip it. if it close to 2, i will skip 2 and take 3.

last, we have swing 1. do i take it? i should to, but at before i do, i already see the sk formed in #6. i quickly realize this situation. i saw this many times.

price break day uptrend trendline and hold by sk.

this is how i draw the trendline.

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following part is how to draw the fib ext. just for ur referenct.

same concept. pt a is alway the first low from the previous low. it is #5.

pt b is the current high 7. then pt c is current low 8.

now you got stop at 61.8 retrace, (most close one) and target price at fib ext 61.8 (pink letter).

this trade result very good, and this is how i draw the fib and fib ext.

THREAD UPDATED. PLEASE CHECK POST #1.

The DeMark indicator, you posted does not mark swing points. It only draws two horizontal lines.

DeMark swing points are nothing more than fractals. Do you know what degree fractal you are using?

Does a high, for example, have 1 lower high on each side?...2 lower highs?...3 lower highs?

I couldn't see the dots on the chart you posted and the numbers didn't line up with swing points.

1. the post do show the swing pt. check very cafully in the left side of each swing low, u will find a little red dot indicate a swing.

2. the two dotting line at the last swing high and low are the most recent trendline.

3. the tom demark trendline indicator seems only catch the swing with one candle higher on each side.

4. you can zoom in the pic after you open it. it will help to find the dot.

THREAD UPDATE. PLEASE VISIT POST #1

UNDER MONEY MANAGEMENT.

(FIFTH POINT, SHORT AND LONG SESSION)