- 15 Mins Special Bars
- Momentum Analysis – Part 1
- Momentum Analysis – Part 2
- Momentum Analysis – Part 3
- Quick Recap
L et me warn you, by the time you are finished reading this strategy, you will find yourself ditching those old indicators that have taken up room in your trading charts for so long. You will find most of those indicators superfluous and will now start to look at the market in a totally different light. Beware as you read further!
Before we dive into the nitty-gritty of FireZone strategy lets lay out some major issues that you face when working with indicators so that we have a benchmark to compare with. I will soon show you how FireZone does the work better and also why we do what we do.
First, let’s look at the typical Stochastic indicator placed on a nice trending chart. As soon as the price stops trending and then begins to show a small sign of a correction, you get a crossover and a sell signal but you can clearly later see what actually the result was.
Now, honestly, how many people really know what the mathematical code behind Stochastic really is, or what it even really means? Why is it saying a price is oversold or overbought? WHY?
I asked those questions myself and in the process FireZone strategy was born. The core concept behind FireZone strategy is about answering those WHY’s!
FireZone strategy is based not only on price action but also in keeping in mind the psychology of the markets. When these two come together, only then do we get something truly outstanding
Let’s study how the same scenario plays out using FireZone. Notice the green and red lines. Those indicate Buy and Sell Zones, when the price breaks out it tells us to go long or short depending on what zone it breaks. We had several Long and Short opportunities in the beginning of this scenario, each resulting in profitable trades.
So how do we do it? Well, details later, the concept first.
We let the market decide what it wants to do and then follow along. We start with removing all biases about the market: we don’t think the market is bullish or bearish to start with.
If price moves above our Buy Zone, then we say: “OK, bulls are in control, lets see if they push the price up.” If the price moves below the Sell Zone then we know bears are active and we will look to join them if they show any signs of “momentum”. Ah! Big word, momentum. We will reveal in great details of how we determine momentum (do not miss reading this part).
When compared this with a mindset of typical trader we notice the big difference.
When the price climbed above into the overbought zone in the previous Stochastic chart, a typical trader would change the outlook or bias from bullish to bearish and start to look for sell opportunities. Notice what happened here. The trader changed bias and waited for the market to fulfill his anticipated outcome.
Can you see what I am getting at?
By having no bias and letting the market lead our actions, we are open for any opportunities that the market presents to us. We are not hoping for the market to move in any particular direction. We are open and ready to tag along wherever the market wishes to take us.
Consider the psychological aspect influencing the mind of a trader. A trader, with his beloved Stochastic and few special “filters” when he gets thrown off course from his original expectations, blames market forces for cheating him out of trades. He feels as if there are forces working against his success, trying to take out his Stops. He feels like a “loser” on every trade with a negative outcome because he chose one side of the market and mentally wanted to “win” at his predictions.
I know because I’ve been there, and am sure you have as well.
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