Williams’ Strategy
Bill Williams is the creator of some of the most popular market indicators: Awesome Oscillator, Fractals, Alligator, and Gator.
Fifth element and Power Ranger swing trading strategies
2019-11-11 • Updated
Information is not investment advice
Fifth element
The main advantage of the "Fifth element strategy" is that it tells you beforehand about the entry price. As a result, you won't spend lots of time in front of the screen waiting for the right moment to make an order.
Key elements:
Timeframe – H1, H4.
Trading tools – MACD with the following settings: fast EMA 12, slow EMA 26, MACD SMA 9.
Currency pairs – EUR/USD, USD/JPY, GBP/USD. USD/CHF, USD/CAD, AUD/USD, NZD/USD.
The concept of a strategy
MACD histogram indicates the direction and momentum of the market. If the MACD histogram switches from negative to positive, this is a signal of the possible upward shift in momentum. You should wait for 5 positive bars on the histogram to confirm the momentum before opening a long order at the fifth bar (that’s why this strategy is called “Fifth element”; it’s not after Luc Besson’s film). If the MACD histogram switches from positive to negative, it means that you should open short positions (the rule of the fifth bar remains in force).
Long trade's setup
- Wait until the MACD histogram switches from negative to positive.
- Wait for 4 positive bars to appear on the histogram before entering the market on the opening of the fifth bar.
- You should place a stop loss at the last low of the histogram.
You have 2 profit targets with risk to reward ratios – 1:1 and 1:2 accordingly. For example, the risk of your trade is 150 points, and the reward is 300 points if both targets are fulfilled. The risk to reward ratio is 1:2, which yields a tidy 6% return if we take a 3% risk.
Power Ranger strategy
Key elements:
Timeframe – H1, H4.
Trading tools – Stochastic oscillator with the following settings: %K period = 10; %D period = 3; Slowing = 3; Price field = high/low; MA method = simple; Levels 20 and 80.
Reminder: stochastic is an indicator that measures overbought and oversold conditions in the market.
Currency pairs - EUR/USD, USD/JPY, GBP/USD, USD/CHF, USD/CAD, AUD/USD, NZD/USD.
The concept of a strategy
The basic concept of the strategy is that a range should be formed after the market stops trading. The stochastic indicator helps us to identify a possible range formation. It is also important to pay attention to the current market momentum to understand whether we should go long or short. If the market is moving up, we may open a long position. The entry point can be found with the help of Stochastic (it should be below the 20 level in the oversold area). If the market is moving down, we may open a short position. The entry point can be found with the usage of Stochastic oscillator, which should be in the overbought area (above the 80 level). The Power ranges strategy has two profit targets. The first one should be taken within the range, while the second target is located beyond the range in an anticipation of a breakout.
Long trade's setup
- Identify an uptrend line.
- Take a look at the stochastic for %K and %D to go below level 20 (oversold area).
- Find support and resistance of the range. You may enter a long position when stochastic leaves the oversold area (crosses the 20 level).
- You should place your first profit target at the 75% mark of the range. The stop loss should be set at the previous support level below the lower border of a range.
Beware! It doesn’t mean that you go long whenever the stochastic is in the oversold region or go short whenever the stochastic is in the overbought region. You should identify momentum before entering the market.
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