40# The Perfect Order Trading System
Submit by Janustrader 03/04/2011
(Strategy by Kathy Lien pages 139-140, Day Trading and Swing Trading)
A perfect order in moving averages is defined as a set of moving averages that are in sequential order. For an uptrend, a perfect order would be a situation in which the 10-daysimple moving average (SMA) is at a higher price level than the 20-day SMA, which is higher than the 50-day SMA. Meanwhile, the 100-day SMA would be below the 50-day SMA, while the 200-day SMA would be below the 100-day SMA. In a downtrend, the opposite is true, where the 200-day SMA is at the highest level and the 10-day SMA is at the lowest level. Having the moving averages stacked up in sequential order is generally a strong indicator of a trending environment. Not only does it indicate that the momentum is on the side of the trend, but the moving averages also serve as multiple levels of support. To optimize the perfect order strategy, traders should also look for ADX to be greater than 20 and trending upward.
Entry and exit levels are difficult to determine with this strategy, but we generally want to stay in the trade as long as the perfect order holds and exit once the perfect order no longer holds. Perfectorders do not happen often, and the premise of this strategy is to capture the perfect order when it first happens.
The perfect order seeks to take advantage of a trending environment near the beginning of the trend. Here are the rules for using this technique.
1. Look for a currency pair with moving averages in perfect order.
2. Look for ADX pointing upward, ideally greater than 20.
3. Buy five candles after the initial formation of the perfect order (if it still holds).
4. The initial stop is the low on the day of the initial crossover for longs and the high for shorts.
5. Exit the position when the perfect order no longer holds.
is a daily chart of the EUR/USD. On October 27, 2004, moving
averages in the EUR/USD formed a sequential perfect order. We enter into
the position five candles after the initial formation at 1.2820. Our initial stop
is at the October 27, 2004 low of 1.2695. The pair continues to trend higher,
and we exit the position when the perfect order no longer holds and the
10-day SMA moves below the 20-day SMA. This occurs on December 22,2005,
when prices open at 1.3370. The total profit on this trade is 550 pips.
We risked 125 pips on the trade.
is a daily chart of the EUR/USD. On October 27, 2004, moving
averages in the EUR/USD formed a sequential perfect order. We enter into
the position five candles after the initial formation at 1.2820. Our initial stop
is at the October 27, 2004 low of 1.2695. The pair continues to trend higher,
and we exit the position when the perfect order no longer holds and the
10-day SMA moves below the 20-day SMA. This occurs on December 22,2005,
when prices open at 1.3370. The total profit on this trade is 550 pips.
We risked 125 pips on the trade.
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