Hello, I'd like to share a system I call the Merlion Method. In my last thread I talked about sharing an EA that traded this method, but I realized I'd have more fun just sharing the method itself. And I'm a much better trader than programmer. 
The mythical Merlion is the symbol of Singapore and that city and this system have both been large influences in my life.
The Merlion Method is a trend trading system based on two of the most fundamental building blocks of technical analysis: the trend line and price action. I believe the Merlion Method is best traded on the 4 Hour and 1 hour time frame. It can be traded on any currency but naturally it's easier to trade on less volatile currencies.
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Since trend lines are 75% of this systems and since sometimes there's confusion over what is a valid trend line, and what's not, first let's go over some trend line basics.
A legitimate trend line, that price will at least acknowledge if not respect, should generally follow these rules:
Trend line Rule #1: Price Touches - A trend line must be touched at least three separate times by the price. These touches should be spaced relatively equal distances apart on the trend line. If they are too close together, then the market will regard them as one touch. And of course, the more touches, the stronger the trend line.
Trend line Rule #2: Trend Line Length - A trend line must be a minimum of 20 bars long. If the trend line is any shorter, then the market will regard the price touches as fewer touches and the trend line as weaker.
Trend line Rule #3: Touch/Trend line Length Ratio - Price touches should not make up more than 33% of the trend length. If there are 11 price touches to a trend line, the minimum trend line length should be 33 bars. If the trend line is any shorter, then the market will view those 11 touches as fewer and the trend line as weaker.
Trend line Rule #4: Slope - The ideal trend line slope is 45 degrees. If the slope is less than 30 degrees, then the price will give more respect and attention to the local horizontal S/R from recent highs and lows than the S/R from the trend line. And a very steep slope is only reliable if it doesn't violate trend line rule #2.
Trend line Rule #5: When does a Trend End? - The end of a trend is signified by a moderate bar opening and closing on the opposing side of the trend line. A moderate bar is defined as a bar where the bar's hi-low range is near the ATR of the last 100 bars and where the range of the open-close is not less than 33% of the hi-low range.
In summery, an ideal strong trend line is has numerous price touches, is at least 20 bars long, does not violate the 33% ratio and is not too shallow and not too steep.
Here are some pictures of ideal trend lines.
http://i1275.photobucket.com/albums/...psf3812449.jpg
http://i1275.photobucket.com/albums/...ps7055a604.jpg
http://i1275.photobucket.com/albums/...psc19fdad0.jpg
The mythical Merlion is the symbol of Singapore and that city and this system have both been large influences in my life.
The Merlion Method is a trend trading system based on two of the most fundamental building blocks of technical analysis: the trend line and price action. I believe the Merlion Method is best traded on the 4 Hour and 1 hour time frame. It can be traded on any currency but naturally it's easier to trade on less volatile currencies.
-------------------------------------------------------------
Since trend lines are 75% of this systems and since sometimes there's confusion over what is a valid trend line, and what's not, first let's go over some trend line basics.
A legitimate trend line, that price will at least acknowledge if not respect, should generally follow these rules:
Trend line Rule #1: Price Touches - A trend line must be touched at least three separate times by the price. These touches should be spaced relatively equal distances apart on the trend line. If they are too close together, then the market will regard them as one touch. And of course, the more touches, the stronger the trend line.
Trend line Rule #2: Trend Line Length - A trend line must be a minimum of 20 bars long. If the trend line is any shorter, then the market will regard the price touches as fewer touches and the trend line as weaker.
Trend line Rule #3: Touch/Trend line Length Ratio - Price touches should not make up more than 33% of the trend length. If there are 11 price touches to a trend line, the minimum trend line length should be 33 bars. If the trend line is any shorter, then the market will view those 11 touches as fewer and the trend line as weaker.
Trend line Rule #4: Slope - The ideal trend line slope is 45 degrees. If the slope is less than 30 degrees, then the price will give more respect and attention to the local horizontal S/R from recent highs and lows than the S/R from the trend line. And a very steep slope is only reliable if it doesn't violate trend line rule #2.
Trend line Rule #5: When does a Trend End? - The end of a trend is signified by a moderate bar opening and closing on the opposing side of the trend line. A moderate bar is defined as a bar where the bar's hi-low range is near the ATR of the last 100 bars and where the range of the open-close is not less than 33% of the hi-low range.
In summery, an ideal strong trend line is has numerous price touches, is at least 20 bars long, does not violate the 33% ratio and is not too shallow and not too steep.
Here are some pictures of ideal trend lines.
http://i1275.photobucket.com/albums/...psf3812449.jpg
http://i1275.photobucket.com/albums/...ps7055a604.jpg
http://i1275.photobucket.com/albums/...psc19fdad0.jpg
