Which is the reliable trading system for trading in the direction of the trend?
This trading setup structure will give a high reward with low risk, so as you can allocate more capital during such setup to gain more.
The setup formation
- Look for a trending structure, here the previous trend is a dominant one with an impulse upside formation with heavy volume.
- After the impulse move when we see a retracement with low volume participation, this hints that the buyers have not exhausted and sellers are still not dominant.
- Further confirmation comes when the retracement is till 50% – 61.8% (Fibonacci retracement tool) of the prior impulse move and then again starts moving in the direction of the dominant trend (up).
- The pullback from the retracement should witness an increase in volume.
- Finally, when the price breaks the prior swing high close with a good bullish candle with volume breakout, go for long.
- Set a stop-loss to the 50% retracement level or the swing low from where the pullback has resumed.
*While taking the profits you also need to confirm this setup with technical indicators to ensure the momentum is present and lasts long enough to reach the desired levels., eg- RSI, Stochastics, ADX.
In technical analysis, strong momentum is when the price retraces less as compared to the impulse move in the direction of the dominant trend.
The technical indicators should not be highly overbought while going long during such setup, if so we have to wait for a retest to the prior resistance breakout to level to confirm the continuity of the impulsive move that has started.