Turn Technical Indicators

Into Trading Strategies

By Kathy Lien
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sought.
All Markets Have Variety

K
 To Trade Effectively:
Know What Market You Are In
AND
What Strategies to Use in Each Market
As Trader You Need To Identify the
4 Main Market Conditions
1.  Range
2.  Reversal
3.  Breakout/Momentum
4.  Trend
RANGE
 RANGE
1.  Most Common Trading Environment
2.  70% of All Price Action Happens in Range
3.  Can Last a Long Time
 RANGE is Characterized by
Exhaustion/Reversal Near High/Lows
 RANGE is Characterized by
Compression of Moving Averages
RANGE is Characterized by
ADX Value of Less Than 40
The Key To Trading
RANGE
1.  Fade Highs and Lows
2.  Add to Your Positions Up To
Range Limits
3.  Wider Stops, Smaller Limits
4.  Perfect for Intraday Trading

K
The Greatest Risk:
Breakout

K
 Good Rule:
½ Range = Real Breakout

K
REVERSAL
 REVERSAL
1.  Triggered Off Price Exhaustion or
2.  Sentiment Change
3.  Best Traded in Direction of Trend
4.  Perfect for Intraday Trading
REVERSAL Works Best in Direction of
Trend
TREND
 TREND
1.  Price Action Only Trends 30% of the Time
2.  Once it Starts Can Continue Way Beyond
Reason
3.  Perfect for Medium Term Trading
TREND is Characterized by
By Higher LOWS in Uptrend
 TREND is Characterized by
By Lower Highs in Downtrend
 TREND is Characterized by
Expansion of Moving Averages
BREAKOUT
 BREAKOUT
1.  Triggered Off Event Risk or
2.  Price Level
3.  Can Lead to Trend
2 Types of Breakouts

BREAKOUT on News
BREAKOUT on Price Level
BREAKOUT Leads to Trend
 BREAKOUT
1.  Work Off Key Reference Points
2.  Swing High/Lows
3.  Daily, Weekly, Month High Lows
Breakout Can Lead to
Massive Moves

B
Breakouts Can Be Clearly
Delineated on The Chart

B
Clear Break of Prior Range
Highs or Lows

B
Principal Rules To Trading
Breakouts

B
#1 Range Highs/Lows Must
Be Tested At Least Once

B
B
#2 Filter for Fake out

B
Breakout = ½ Value of Range

B
B
#3 Set Comfortable Stop

B
 Stop = TO ½ Range
(i.e.
If Range High-Low = ~100 pips
Stop =~50 pips

B
B
 Key Breakout Money
Management Technique –
TRY to Let Profits Run

B
Why? Because Breakouts
Are Rare and FAIL Often

B
2 Primary Drivers of Breakouts
1. News
2. Price

B
General Rule Of Breakouts:
The Longer The Base
The Bigger The Breakout

B
B
1.  You Can Scale Buy/Sell in RANGE
2.  TREND is Determined by Lows in Uptrend, Highs
in Downtrend
3.  BREAKOUT Can be News or Price Based
4.  REVERSAL is Best Traded in Direction of Trend

K
 Day Trading

1.  Range
2.  Reversals
 Swing Trading

1.  Trend
2.  Breakouts
3 Ingredients in a
Perfect Trade
#1 Fundamentals
#2 Technicals
#3 Sentiment
Turn Top Technical Indicators
Into Trading Strategies
History Repeats Itself but Not in
the Exact Same Way
 Top 10 Indicators
1.  Moving Averages 6. Fibonacci
2.  Relative Strength Index Retracements
3.  Stochastic 7. ADX
4.  MACD 8. ATR
5.  Bollinger Bands 9. Pivots
10. Parabolic SAR
 What is the Standard Way
To Trade
RSI (Relative Strength Index)?
How to Turn RSI into a
Trading Strategy
 Long Trade
Step 1: Look for RSI < 30
Step 2: Look for RSI > 50
Step 3: Buy
 Long Trade
Step 4: Stop at Swing Low
Step 5: Close ½ at 1.5-2x risk
Step 6: Trail Stop
 Short Trade
Step 1: Look for RSI > 70
Step 2: Look for RSI < 50
Step 3: Sell
 Short Trade
Step 4: Stop at Swing High
Step 5: Close ½ at 1.5-2x risk
Step 6: Trail Stop
 Kathy’s Way of Using
Bollinger Bands
Double Bollinger Bands
What are double Bollinger Bands?

20 Period, 2 Standard Deviation

20 Period, 1 Standard Deviation

2 BB = Outer Lines
1 BB = Inner Lines
Using BB to determine
Trend or Range
 Double Bollinger Bands
Determine Trend vs. Range
1.  Picking Tops and Bottoms
2.  Joining New Trends
3.  Joining Existing Trend at Value
kathy@bkforex.com