Guerrilla Trading Explained  

A New System

I have put forth a new system I call Guerrilla Trading. I will try to describe the characteristics.

It is fast and aggressive. Trades are made quickly by attempting to enter at a turn of price, or just before a breakout. While trading is most often done with the trend, it is marked by entering on a pullback. Often one trade will close and another will be opened very shortly afterward in the opposite direction. Guerrilla Trading tries to move with the market. It does not wait for a trend to be established.

Guerrilla Trading is done on a 15 minute chart. Hourly charts and 4 hr charts will be looked at frequently and particularly to confirm or check longer term trends and indicators at the higher time frames. But trading decisions are made on indicators, support/resistance levels, and other factors charted in a 15 minute time frame.

Those Nasty Stops
Stop free trading has become the norm in Guerrilla Trading. Now before you dismiss me as a raving lunatic, hear me out on this one. I was putting a 20 pip stop on every trade, only to get stopped out prematurely on otherwise successful trades. I then changed to 30 pip stops and then 40 pip stops. The results were a drop in my win percentage towards 50%. The only safe stop seemed to be 100 pips. But, I was taking all my gains at around 30-40 pips. I was usually happy with 17-20 pips. It seemed unwieldy to have such a large stop for such smaller gains.

So I dropped the stops. If I was in a trade wrong it was generally very obvious. If all the factors that caused me to enter the trade in the first place remained true, I would hold the trade to a successful conclusion. Now this is truly trading insanity. I do not recommend stop-free trading for anyone. But it works for me. Follow my trades and see how I pull it off. (or just comment and call me nuts)

The Indicators Used

Guerrilla Trading uses the following indicators:

3x3 EMA-- a 3 period Exponential moving average shifted forward 3 periods. This indicator originated from Joe DiNapoli. It is colored a red solid thin line on my charts.
62 EMA-- a 62 period Exponential Moving Average. It is used as for dynamic support and resistance. It is also a short term trend line. This average is taught by Rob Booker, my first and foremost trading hero. It is colored a blue solid thick lined on my charts.
248 EMA-- a 248 period Exponential Moving Average. This is nearly equivalent to a 62 EMA on a chart four time frames higher (15 min x 4 = 1 hour). This also is taught by Rob Booker. It is colored a gold solid thick lined on my charts.
800 SMA-- an 800 period Simple Moving Average. This is used to see longer term trends. It is also taught by Rob Booker.
Pivot Points-- These are a sets of levels (points) that pivot around the pivot point which is the average of the open price, close price, and high price from the previous day. I use the 24 hour period ending at 5 PM Eastern Standard/Daylight Time. The Pivot Point is a magenta dashed line. R1,R2, and R3 are aqua-colored short dashed lines. S1, S2, and S3 are chartreuse short dashed lines.
MACD Histogram-- A chart of the spread between the signal line and the trigger line in a MACD indicator. When the value is 0, the signal line is equal to the trigger line meaning the two are crossing. I don't trade on the MACD, but a system of trading after a peak or trough on the histogram was followed for a long time. When trading with a trend, it can give a very good signal. Such a system is the McGrew Dots.
Slow Stochastic-- I use the values put forth by Joe Dinapoli. This serves as an overbought/oversold indicator. I don't base any trades on it but I do use it in a perverse way that requires its own post and explanation.

Other Indicators and Trading Aids

Trend Lines-- These are drawn from high points in downward moving trends, and from low points on upward trends. Trendlines are drawn as they develop by looking for two distinct points. A trade can be executed when price touches (0r approaches) the trend line for a third point. Also a short stop can be placed on the other side of the trend line or a position can be taken when a price candle has closed on the counter-side of the trend line such as in a breakout trade. I draw trend lines as a red solid line. My trend lines are rays (going to the right as far as the chart extends).
Parallel Trend Lines-- These lines will contain a price range between the parallel lines and are often called channels. Rob Booker teaches a channel system that is very good in which Fibonacci levels are employed. I generally do not trade in channels so I don't draw them very often. Certain very reliable patterns, such as a flag pattern, uses parallel lines to illustrate the pattern. These are colored the same as trend lines.
Horizontal Price Level-- A line is drawn, usually dashed, to show a recent or long standing high or low. The purpose is to look for a double top or other such pattern. Also it can be used to show a breakout or continuation movement.
Fibonacci Retracement--This is perhaps the greatest single indicator to show why price movement stops and moves (the up and down undulation) at distinct levels. This requires many posts to even partially explain. Simply put, when price has made sustained and lengthy movement in one direction (the length of the trend if you will), price will retrace (retract) to the levels 23.6%, then 38.2%, then 50%, and then 61.8%. Whole books have been written concerning Fibonacci levels. Mathematically, the levels are based on geometric extrapolations of the golden ratio. [for fun: 38.2 + 61.8 = 100; .618 squared equals 38.2; .682 cubed equals 23.6] Click the links for more information.

Putting Everything Together

Guerrilla Trading uses all of the indicators described and looks for trades based upon several trading systems and signals. In its simplest form, it tries to catch movements at their start based upon support and resistance as illustrated by the charted indicators. The most common line of demarcation is the 62 EMA, and that is followed by Pivot Points and then Fibonacci Levels. Pivot Points are the most common profit target followed by Fibonacci Levels. Of course, because it is guerrilla trading, all generalities are only good as long as they are useful. The priority of the indicator or signal is dictated by the conditions of the market at the time of the trade. (Now I need to wash my mouth out after spewing such verbal gobbledygook).

Look for more later