Trading is easy, however, consistently profitable trading is where the difficulty lies. Traders since the beginning of time have tried to come up with a strategy that they could use in order to increase their win rates while minimizing their risk. In this article, we go over one of the ways in which you could do so. We discuss the different indicators, the settings used, and also go over the results. Read on to find out more.
There is only 1 main indicator used in this trading setup, which has been explained below in detail.
The EMA is simply the exponential moving average of the stock’s closing price over a given number of trading sessions. It works in a very similar way to the SMA (Simple Moving Average), except it gives more priority to more recent data as this is considered to be more relevant than old data. The parameter that you have to enter for the EMA is the time period. Usually, traders only go long when the current price is above the EMA, and short when prices go below the EMA.
For this particular trading setup, 3 EMA indicators were used with the following settings:
- EMA 1: Period = 20
- EMA 2: Period = 50
- EMA 3: Period = 100
A long was initiated whenever a pullback in an uptrend was spotted. For this to happen, the candles should originally be above EMA 1, which is above EMA2, which is in turn above EMA 3. Then, the trend should see a pullback where the candles fall below EMA 1 but are still above EMA 2 and 3. Once there is a pullback and the candle goes above EMA 1 again, a long position will be opened.
A short was initiated whenever a pullback in a downtrend was spotted. For this to happen, the candles should originally be below EMA 1, which is below EMA2, which is in turn below EMA 3. Then, the trend should see a pullback where the candles go above EMA 1 but are still below EMA 2 and 3. Once there is a pullback and the candle goes below EMA 1 again, a short position will be opened.
The risk-reward ratio was fixed at 1:2, with the stop loss being the EMA2 line.
Results and Adjustments
After a scalping session over past data, the overall results were:
Profitability: 34.48% net profit
Number of Trades: 62
% of trades profitable: 66.13%
Profit factor: 1.914
Some additional indicators and settings that could be added in order to increase the win rate and reduce the risk employed are:
- The stop-loss and take-profit settings could be tweaked in order to increase the profitability and/or the win rate.
- The ADX indicator could be used to weed out bad trades that would have happened just as the trend was about to end.
There are several highly profitable trading strategies that you can use in order to trade the markets and profit, but there are few that are as highly effective as the one discussed above. By implementing it even in its current form, you can make significant profits. You can also tweak the settings and alter the parameters on your own, resulting in a higher win rate and/or profitability.
- Magic Pullback Trading Strategy Easy, Simple, Profitable – Complete Trading System – YouTube
- TradingView Indicator
- Settings Used in the Video
- Exponential Moving Average – Investopedia