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Three Methods Strategy
1. Trend-Following Strategy
- Objective: Capture profits by trading with the trend.
- Tools: Moving Averages, MACD, ADX.
- Buy Signal: Shorter MA crosses above longer MA (bullish signal).
- Sell Signal: Shorter MA crosses below longer MA (bearish signal).
- Example: 50-day and 200-day moving averages (Golden Cross and Death Cross).
2. Range-Bound (Mean Reversion) Strategy
- Objective: Profit within a range by buying near support and selling near resistance.
- Tools: Bollinger Bands, RSI, support and resistance levels.
- Buy Signal: Price near support level or lower Bollinger Band.
- Sell Signal: Price near resistance level or upper Bollinger Band.
- Example: Place stop-loss outside range to avoid losses if a breakout occurs.
3. Reversal Strategy
- Objective: Capture profits from trend reversals.
- Tools: Candlestick patterns, divergence indicators, Fibonacci levels.
- Buy Signal: Bullish reversal pattern (e.g., hammer) with bullish divergence.
- Sell Signal: Bearish reversal pattern (e.g., shooting star) with bearish divergence.
- Example: Place stop-loss below low of bullish pattern or above high of bearish pattern.
Combining the Three Methods
- Identify Market Conditions: Use ADX and Bollinger Bands to determine if the market is trending or ranging.
- Filter Signals: Confirm with secondary indicators to improve accuracy.
- Risk Management: Set stop-losses and position sizes based on market conditions.
Pros
- Versatile: Adaptable to trending, ranging, and reversing markets.
- Improved Accuracy: Multiple methods reduce false signals.
- Well-Rounded: Combines trend, range, and reversal techniques.
Cons
- Complexity: Requires knowledge of multiple strategies and indicators.
- Higher Monitoring: Demands regular analysis and adjustments.
- Potential Overtrading: Risk of overtrading if strategies aren’t managed carefully.
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