How toTrade Trending Markets

The Shift Theory Ratios™ are very simple to use in trending markets. The strategy is just a crossover of the Upper Shift™ or Lower Shift Ratio™ that gives the trade signals. As an example we will cover two main set-ups:

  • The Up Hook
  • Basic Cross Over

Before considering any trend strategy you should always consider the Inside Shift Ratio™. If it is indicating a choppy market then chances are that trend trading is not the best idea. I will make a note that when the back testing was done the Inside Shift Ratio™ was not considered.

The Up Hook

The up hook is the strategy that was used for all of the back testing on this site with a 60 minute bar chart. The up hook is very simple and it is a set-up that gives the trader lots of time to place an entry order.

 

Up Hook Trading Technique

Up Hook Trading Technique

The up hook is a set-up when either the Lower or Upper Shift Ratio™ are below the Base Line™ or at 0. For example the Upper Shift Ratio™ has been at 0 for the last 2 bars and the first upward move is the up hook. In most cases you can set the Base Line™ to a number like 5 and when the Upper Shift Ratio™ crosses over you buy. In this case of using the up hook with the Upper Shift Ratio™ you can place your entry order on the books before the signal happens. When trading the up hook with the Upper Shift Ratio™ you place a buy stop limit order 1 tick above the previous bars high. That way your order is on the books and slippage is minimal plus you have lots of time to react.

On the short side it is the opposite. Instead of the Upper Shift™ crossing over the Base Line™ it is the Lower Shift Ratio™ crossing over the Base Line™. In this case once the Lower Shift™ is at 0 then you would place a sell short stop limit order 1 tick below the previous bars low. Once the price drops below the previous bars low the Lower Shift Ratio™ will cross over the Base Line™.

It is worth mentioning that the longer a Shift Ratio™ has been at the 0 level or below the Base Line™ the more powerful the up hook is. Markets have a tendency to whipsaw and this seems to be a behavior that works well with the Shift Ratios™.

Basic Cross Over

Cross Over Trading Technique

Cross Over Trading Technique

The basic cross over is just like trading two moving averages. In this case it is just the Upper Shift™ and Lower Shift Ratio™ that cross over each other. It is a technique that can be used as either as a trend guide or as a direct signal.

If you use Shift Ratios™ as a trend guide then it is as simple as if the Upper Shift™ is greater than the Lower Shift Ratio™ then you would only trade to the long side. On the short side is would be if the Lower Shift™ is greater than the Upper Shift Ratio™ then you would only trade to the short side. In this case you would use the two averages as a guide for another trading technique.

The basic cross over strategy for a long entry is when the Upper Shift™ crosses over the Lower Shift Ratio™. On the Short side it is when the Lower Shift™ crosses over the Upper Shift™. It is a basic cross over strategy. The rest is just like trading off of any moving average.

 

HYPOTHETICAL PERFORMANCE RESULTS HAVE MANY INHERENT LIMITATIONS, SOME OF WHICH ARE DESCRIBED BELOW. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN. IN FACT, THERE ARE FREQUENTLY SHARP DIFFERENCES BETWEEN HYPOTHETICAL PERFORMANCE RESULTS AND THE ACTUAL RESULTS SUBSEQUENTLY ACHIEVED BY ANY PARTICULAR TRADING PROGRAM.

ONE OF THE LIMITATIONS OF HYPOTHETICAL PERFORMANCE RESULTS IS THAT THEY ARE GENERALLY PREPARED WITH THE BENEFIT OF HINDSIGHT. IN ADDITION, HYPOTHETICAL TRADING DOES NOT INVOLVE FINANCIAL RISK, AND NO HYPOTHETICAL TRADING RECORD CAN COMPLETELY ACCOUNT FOR THE IMPACT OF FINANCIAL RISK IN ACTUAL TRADING. FOR EXAMPLE, THE ABILITY TO WITHSTAND LOSSES OR TO ADHERE TO A PARTICULAR TRADING PROGRAM IN SPITE OF TRADING LOSSES ARE MATERIAL POINTS WHICH CAN ALSO ADVERSELY AFFECT ACTUAL TRADING RESULTS. THERE ARE NUMEROUS OTHER FACTORS RELATED TO THE MARKETS IN GENERAL OR TO THE IMPLEMENTATION OF ANY SPECIFIC TRADING PROGRAM WHICH CANNOT BE FULLY ACCOUNTED FOR IN THE PREPARATION OF HYPOTHETICAL PERFORMANCE RESULTS AND ALL OF WHICH CAN ADVERSELY AFFECT ACTUAL TRADING RESULTS.