by Teresa Lo
No matter what trading books say, all trade setups can be classified into the following four groups:
- Retracement: A pullback in an uptrend to buy; a bounce in a downtrend to sell. Trend should be confirmed by rising ADX values.
- Test: In an uptrend, it is move back to the last swing high (a test of top) where sellers showed up before; in a downtrend, it is a move back to the last swing low (a test of bottom) where buyers showed up before. A retracement pattern MUST precede the test.
- Breakout: A move out after a prolonged period of being stuck in a trading range or a big triangle, with ADX dropping to very low figures such as the 10-15 area. A breakout is NOT a new high made on a test of top or a new low made on a test of bottom.
- Spikes: The Extreme ADX Reversal, after a parabolic directional move.
In 1996, Larry Connors and Linda Rachske wrote a book called StreetSmarts. It contained a retracement strategy that basically combines the classic move back to a moving average, and qualified the strength of the trend by using ADX.
I found an interview in the AIQ Opening Bell with Linda from August 1997 where she described the setup in her own words: The Holy Grail retracement setup.
04.01.15 13:16 #