2121 Trading Strategy - Settings & Who Has Control

Summary

In this video, Muhammad shares his approach to trading, focusing on the moving averages and indicators he uses. He explains how he utilizes tick charts (1,000 for NASDAQ, 500 for YM, 2,000 for ES) to analyze price action, alongside 21-period EMAs for highs, lows, and closes. Emphasizing that these indicators are not signals, Muhammad advises traders to use them as tools to understand market trends and control. He cautions against blindly following signals, encouraging viewers to wait for confirmation before making trades, and highlights the importance of identifying traps and range-bound markets.

Takeaways

• 😀 Moving averages are used as indicators to identify trends, not as standalone buy/sell signals.
• 😀 Tick charts (e.g., 1,000-tick for NASDAQ) are preferred over time-based charts because they reflect real-time market activity with volume.
• 😀 The 21 EMA (Exponential Moving Average) is used for analyzing the close, highs, and lows of the market, with different colors for each.
• 😀 The blue line (21 EMA for the close) is used to assess market control, with its position indicating whether buyers or sellers are dominant.
• 😀 Moving averages should not be interpreted as signals for immediate trade decisions, as they may lead to traps in the market.
• 😀 Traders should wait for confirmation, such as a 'trap' pattern, before entering trades based on moving average signals.
• 😀 Moving averages are most useful in trending markets and less effective in ranging markets.
• 😀 The speaker emphasizes the importance of using multiple strategies to complement moving averages, such as breakout and intersection strategies.
• 😀 When the moving average is inside the Bollinger Bands, avoid trading as it suggests a range-bound market.
• 😀 Market traps, where the price appears to break in one direction before reversing, are common, and traders should be cautious of these false signals.
• 😀 The use of volume is crucial when reading tick charts, as it confirms that real buying or selling has occurred during a specific time frame.

Q & A

Why does the speaker prefer using tick charts over time-based charts?

The speaker prefers tick charts because they reflect actual trading volume, which gives a more accurate representation of price action. Time-based charts may show large candles without any significant volume, making them less reliable for decision-making.

What are the main moving averages the speaker uses in their trading?

The speaker uses three main moving averages: the 21 EMA for close, the 21 EMA for highs, and the 21 EMA for lows. These moving averages form a ribbon where the close is in the middle, and the highs and lows are on the outside.

What is the significance of the 'blue' moving average in the speaker's strategy?

The blue moving average represents the 21 EMA of the close and is used as a dynamic signal line to indicate whether buyers or sellers have control of the market. When the blue line is outside the Bollinger Bands, it signals the potential for buying or selling opportunities.

What role do Bollinger Bands play in the speaker's strategy?

Bollinger Bands (referred to as 'Binger') help the speaker evaluate market conditions. The position of the blue moving average relative to the bands shows whether the market is trending or ranging. If the blue line is inside the bands, the market is considered to be in a range, and trades should be avoided.

What does the speaker mean by 'traps' in the market?

The speaker refers to 'traps' as market movements where prices initially suggest a trend (up or down), but then quickly reverse, often leading traders to make incorrect decisions. The speaker advises waiting for confirmation signals to avoid getting trapped in false moves.

When should a trader avoid taking a trade according to the speaker's strategy?

A trader should avoid taking trades when the blue moving average is inside the Bollinger Bands, as this indicates a ranging market. Additionally, they should avoid entering trades when the market is flat or when the moving averages are not clearly trending.

How does the speaker use moving averages to determine market control?

The speaker uses the position of the blue moving average relative to the Bollinger Bands to assess market control. If the blue line is outside the bands in the direction of price movement, it indicates that buyers or sellers have control, and a trade may be appropriate.

What caution does the speaker provide regarding moving averages touching each other?

The speaker cautions that touching moving averages do not always signal a valid trade. They advise waiting for confirmation signals, as moving averages intersecting could be part of a range, leading to false signals.

What should a trader do if the market makes a new high or low but does not touch the moving averages?

The speaker advises not to enter a trade if the market makes a new high or low without touching the moving averages. In such cases, the market could be showing a fake signal, and traders should wait for more confirmation before making a move.

What additional strategies does the speaker use besides the moving averages for trade entries?

Besides moving averages, the speaker uses various entry strategies, such as the 'Test Setup,' 'Intersection Setup,' 'Limit Setup,' and 'Bollinger Setup.' These setups involve different methods for entering trades based on specific market conditions and price movements.