The Signal Bar Method

In this lecture we take a look at some of the most basic reasons that this strategy takes very little time.

The Signal Bar Method keeps things simple by focusing on price action and candlesticks. It also takes into account moving averages, trendlines, patterns, and the MACD (Moving Average Convergence Divergence). It's really a game of patience after you understand how the method works and what to look out for. You have to wait until the end of every day. You can then make a decision. Either there is a good signal bar and you can place an order or there's not. Once your order fills you place a stop loss. We can place a profit order for half our position and adjust the stop loss at the end of every day.

If you're not following a system, method, or stategy your trading is essentially random. Which makes it gambling. There needs to be some type of rule base. In theory if there are more rules you will see less trades. The rules need to be met to see a potential trade. Those trades should be higher probability though. As mentioned earlier, waiting for high quality signal bars is key. Patience and discipline are key. A method or strategy is only as good as its results and how well it is followed.

A candlestick chart involves negative and positive bars or "candlesticks." The candlesticks can be any color but are typically colored green if positive and red if negative. Another common color variation of candlesticks is White for positive and Black for negative. If the candle closes in the middle it closes neutral. If it's not a neutral candle a candlestick will have a "body." The body shows the opening and closing. Any trading above or below those will show "wicks." This shows how far the price traded above or below the open/close. Putting candlesticks together gives you a chart and paints a story. By being able to read the chart, you can see where things will likely go. It's a show of supply and demand. We can then wait for the ideal candlestick to look to jump into any trading vehicle. In the next lesson you will find examples of how to read a candlestick.  You will also find "Bullish" and "Bearish" candlestick patterns. Each shows common candlestick patterns that'll help you identify higher quality signal bars within their context.

In this lecture you will find examples of how read candlesticks and candlestick patterns.

A moving average is an indicator used in technical analysis and charting. It shows the calculated moving average price of whichever "trading vehicle" you are looking at. The numerical value of the moving average shows the average price for that period of time. It is portrayed on the chart as a line and moves along with the price action.

A Simple Moving Average (SMA) is the most common type of moving average indicator. It is a calculation that takes the arithmetic mean of a given set of prices over a specific number of Months, Weeklys, Days, Minutes, or even seconds in the past. The result is a squiggly line that follows price action. The lesser the value of the moving average the closer the line will stay with the price action as it is a closer average of price. The higher the value the further away from price action the line will be as it has to account for a longer duration of price.

An Exponential Moving Average (EMA) is a weighted average that gives greater importance to the price of the trading vehicle in more recent Months, Weeks, Days, Minutes, or seconds. This in turn makes the moving average more responsive to changes in price and typically follows price action a lot closer. This can help us identify general trends in price action over various time periods.

Some of the most widely followed duration's of moving averages tend to act as general areas of support and resistance as well. You will find as we move forward through this course that some of the highest quality signal bars tend to touch or "bounce" off of two important moving averages. The 10 simple moving average and 8 exponential moving average.

In the below the next lecture I give an example of the 3 moving averages I use and how to spot them. 

It is relatively straight forward to draw trendlines properly. There are Major and Minor trendlines. A Major trendline will connect the close of swing high or low candles to the most recent swing high or low closes. While a Minor trendline will connect the absolute high or low of the most recent two swing highs or lows. You should always connect the most recent swing highs and swing lows to get accurately drawn trendlines.

If it's possible to connect swing highs or lows beyond that it just adds strength to the trendline. It makes the trendline that much more important when there are multiple touches of to it. Even if a stronger trendline was to break it makes it that much more important. This is mainly because there will be more stop loss orders directly below it and more buyers buying around it. The moves off of it or breaking through it can be that much more intense when there are multiple touches of a trendline.

Trendlines aren't always "perfect" but, we do our best to draw them correctly and find the patterns showing supply/demand in certain areas. If we can identify a quality signal bar within the context of a trendline break or right before a trendline break it increases the odds of a successful trade. Once again, going back to stop-loss orders and the effect those will have as the price moves through them.

***Make sure you take a look at the downloadable trendline examples file below.  This will show examples of properly drawn minor and major trendlines.***

Volume shows the amount traded in a given period or candlestick. Typically "Technicians" or traders use volume to confirm strength in a candle. Traders will gain more confidence if rising or falling markets do so with rising volume. If a topping pattern or candlestick formation is playing out and volume is high in these areas it should add confidence as well. Volume isn't needed with our method. It is good to understand what it is but, it isn't needed with this method. Below is a picture of a chart showing volume below price action. Even though the volume is colored negative (red) or positive (green) it doesn't change the actual amount traded for that period.

***Be sure to check out the downloadable volume file to see an example of volume plotted at the bottom of a chart***

The Moving Average Convergence Divergence, also known as the "MACD" is a momentum oscillating indicator. The oscillator helps to show momentum in trends. Two exponential moving averages of any length are plotted on the indicator. A final moving average that shows the difference between the two exponential moving averages is then plotted as the "signal line." The MACD oscillator typically sits below the main chart as its own window. The MACD is useful in spotting exhaustion/ends to trends and potential reversals. When the MACD shows a consecutive lower swing high as price action is putting in a higher swing high it is showing exhaustion to the upside. Inversely, if the MACD is showing a consecutive higher swing low while price action is showing a lower swing low it is showing exhaustion to the downside.

***In the next lecture I give visual examples of how the MACD can be used.***

In this lecture we go over examples of MACD divergences.

Taking profit using this method is generally straight forward. You should always be able to determine your price area to start taking some profit once you have identified a high quality signal bar. This is because your initial stop-loss (the initial amount your willing to lose on the trade) should determine your profit area. I.e. if the risk of the trade is $1 the reward or profit should be at least $1-2 on the first half. This generates a 1:1-1:2 risk:reward ratio.

The second half can be trailed for a larger profit. 1:3, 1:4, or even more sometimes. In general, as the trade reaches the larger 1:3+ risk:reward ratios from the initial stop-loss, partial profit can continue to be taken until the trade has been stopped out of (stop-loss triggered). If the trader wants to let the second half run for whatever it will then the trader can rely on the stop-loss instead of scaling out.

Either way the stop-loss has to be used but, as the trade goes the winning direction and new risk:reward ratios are reached. The trader will have to make the decision of locking in profit or sticking with the trade until the stop-loss is eventually hit. The stop-loss is moving each daily close as long as the new candlestick close is the color of the winning direction. Otherwise it stays where it is until it's either hit and triggered or a new candlestick of the correct color is put in.

In the downloadable file I give an example of how trailing half profit led to around a 40% gain before it was triggered/filled. We can also see how there was no stop loss above the two green candles towards the bottom because they weren't the right color of the short trade. It wasn't until we put in a red candlestick the following day that we were able to move our stop-loss down. We can also see how quick the trade generated a 1:1 or 1:2 or even 1:3 in the very day the trade was triggered/filled/taken.

There are many times where 1:1-1:2 risk:reward ratios are reached in a single day. It's very important to remember to set your alerts on tradingview to be alerted on the computer or phone when the area is reached. This is gone over in the Tradingview and Tradingview mobile lessons.

A loss shouldn't happen that often if a trader waits for high quality signal bars. Sometimes there are fake outs and they do happen. Later in this course we will identify signs of a fake out and try to limit them as much as possible. Once a signal bar is identified and an entry order has been placed above or below the high/low depending on if it's a long or short, the stop-loss order can be placed once the trade is filled.

A stop-loss order should be placed directly above or below the signal bar (by the smallest trading increment possible) depending on if it's a short or long trade. If it's a short trade the stop-loss order would go directly above the signal bar initially. If it is a long trade it will go directly below the signal bar by the smallest increment in price possible. You can figure this out by hovering of the signal bar, looking to the top left of the chart in which it will show the O (Open), H (High), L (Low), and C (Close). You can then set the stop-loss order to one price increment higher or lower than the high/low whether short or long.

Losses can happen so don't get discouraged if it happens. The majority of signal bars should generate at least 1:1 if not much better majority of the time. A loss or fake out should be rare if higher quality signal bars are being used regularly. No strategy wins 100% of the time. This needs to be accounted for and this is why proper leverage is so important. Proper risk is so important.

Every trading vehicle's price generally moves up and down. We call these price movement swings. A "Swing Low" is defined as a "valley" within a series of bars or within an indicator or oscillator. A swing low must have at least two "legs" that starts with an initial move lower followed by an up leg. A leg is defined as two or more bars going in any direction. This creates the "valley" or swing low look. Generally swings create support or resistance areas as price is supported or rejected from the the swing area. A "Swing High" is the exact opposite of the low. However, instead of a "valley" the swing is seen as a "peak." It is identified after an up leg is followed by a down leg. This creates the "peak" look.

In the downloadable file we can see swing highs circled with red and swing lows circled with green.

In this example we take a look at some of the most common chart patterns Bullish, Bearish, and Neutral.

The highest quality "Signal Bars" are rare but, there will still be others to take advantage of. The most ideal Signal Bars come after an initial move away from the 10 Simple Moving Average (SMA) and 8 Exponential Moving Average (EMA). Ideally, the price then pulls back or trades sideways into the moving averages as they catch up. It is a good sign to see wicks showing the supply /demand in favor of the trading direction. Whether that be Short or Long.

The main focus should on the actual candles in relation to the moving averages. There needs to be at least a small space between the moving averages and candles. A move away from them. We need to see more than 2 candles after that initial move away. Generally this should give the moving averages enough time to catch up close enough to take the risk. Once we have either a pullback or sideways trading into the moving averages we can start to look for a signal bar. The Signal Bar should be the same color as the direction the trade is being taken. I.e. If the trade being placed is a short, the candle should be red. If it's a long, it should be green. The moving averages should essentially be "pushing" the candle the correct direction. This is the easiest type of signal bar setup to identify. It is one the highest probable setups and very defined majority of the time. The direction has been chosen and there isn't any guessing of whether or not a move up or down is going to happen.

Other potential signal bars will come prior to breakouts or from topping/bottoming patterns. If a double top or bottom is given you will usually get some type of signal bar to place a trade on. There needs to be that second touch of support or resistance to then get the signal bar. This would mean price pulling back from the area to the moving averages and then heading to that support or resistance area a second time. Once a reversal bar is shown at this support/resistance area a second time that reversal bar can be used as a "Signal Bar."

The breakout "Signal Bars" are more difficult to spot because price is in a consolidation period. Which means there will be traps sometimes close to the break out. You might get put into a trade a little to early only to get stopped out that same night or next day. There also occasions when you will have a move towards a trendline of a pattern and get a nice signal bar setup as moving averages are "pushing" price up right near the trendline and it's a high quality play. It's really all about being patient in these consolidation periods of time. The most important Points are that the signal bar should to be the correct color and a stop-loss has to be placed after the trade is live/order filled. It is much easier to show examples of these 3 different types of signal bar setups with pictures.

In this lecture we continue on our journey in identifying high quality signal bars.

In this lecture we continue on our journey in identifying high quality signal bars.  We wrap it up in this last part c.

In this lecture we look at real world examples of high quality signal bars.

The easiest charting platform/program to use is likely Trading View. It's a relatively newer platform but, very easy to navigate on. It's easy to sign up on their website. Just head there and click "get started." You shouldn't need more than their "Pro" plan if you're just gonna be trading Crypto. If you plant to trade Equities/Equity Futures they offer real time data for all of those. The data options can be found on their "Billing/Subscriptions" page. The fees for this data varies from product to product but, generally isn't too bad. They offer the most common futures data (CME, CBOT, COMEX, NYMEX for $5/month).

Once you have signed up for Trading View head over to the "Chart+" page by hovering over "Products" at the top of the screen. Their generic chart settings will be preloaded. No need to make things complicated though. We can simply add a few things and be pretty well setup.

To add the moving averages head to the top of the screen and click on "Indicators." Here you can search for any indicator. For now let's search for "Moving Average" and click on it twice when it comes up on the list. This should add the moving average indicator to the chart twice. If you need to re-search it again go ahead and do so.

In the top left hand corner of the chart you should now see 2x "MA 9 close" moving average specs listed. If you hover over these you can then click on the gear icon and adjust the inputs, style, and visibility. If you go over to the inputs tab we can change the length to 10 for the first moving average. I also like to color this one green in the "Style" tab. Click "Ok" and hover over the next MA specs at the top of the screen. Let's change the input on this one to 20 and then change the style to blue. You should see the moving averages change on the chart after clicking "OK."

We still need to add the 8 exponential moving average. Go back to Indicators at the top of the screen and search for exponential. You should see "Moving Average Exponential," click on it. We should now see the specs at the top left hand of the corner. Hover over it and click the "gear." We'll input 8 for the length and orange for the style color. This gives us the 3 moving averages we want to have no matter what. You can always add the 50, 100, and 200 simple moving averages if you like. Typically moving averages will show important areas of support and resistance on the Daily, Weekly, and Monthly Timeframes. However, it is unnecessary for the Signal Bar Method.

To add the MACD, go ahead and search for it in the indicator search. You should see a "Moving Average Convergence Divergence" at the top of the search. Click it. It should appear at the bottom of the chart. Hover of MACD in the top left hand corner of the MACD window at the bottom of the chart. Click on the gear and then click on the "inputs" tab at the top. In here we should adjust fast length to 5, slow length to 9 and signal smoothing to 2. These inputs seem to give the best picture on the MACD.

Your charting platform is now setup to run the signal bar method.

Now that we have our charting platform setup we can move on to the actual exchange account. Most exchanges will offer charts as well but, they aren't nearly as valuable as Trading View. This was the purpose of setting that platform up.

In this lecture we go over the Kraken mobile app.  How to navigate and get around on it.

In this lecture we go over the TradingView mobile app.  How to navigate and get around on it.

Once a high quality signal bar has been identified a buy or sell stop-market order can be placed depending on if it is a short or long trade.

If the trade is to be a short it will be a Sell Stop-Market order. If the trade is to be a long it will be a Buy Stop-Market order.

The stop price is the price that the order will trigger at. It'll fill the order at the best possible price if it is hit or triggered. Some exchanges allow you to set the stop price to "last," "mark," or "index" price. Last price works fine for this method. The stop price should be the smallest increment possible above or below the signal bar depending on if it is a long or short.

I.E. If the crypto futures contract low is .3640 a stop-loss price of .3639 can be placed if it is a short trade.

If the contract's high was .3640 and it was to be a long the stop-loss price would be .3641.

If the contract offers even smaller increments such as .36400 or smaller go with that. We are going with the smallest possible increment.

After the Stop-Market "stop price" has been input the quantity needs to be set. Identify the stop-loss price(smallest increment above or below signal bar depending on if short or long) and then subtract it from the order entry "stop price." This is the risk that can then be divided by the accounts max risk per trade. I.E. if the account value is 2000. The max risk per trade at 1% of account value is $20. If the stop-price is .3640 and the stop-loss is .3740. The risk is .01 So, $20/.01 = 2000 quantity. 2000 x .01 = $20. Make sure you have the leverage bar set to 1X. Advanced traders can adjust the leverage bar as they see fit. 2x would just increase risk by 2x. 3x, 3x. So on and so forth.

Even if you are using leverage with crypto futures you still need calculate the appropriate amount of risk for your actual account balance.

In general many will teach to not risk more than 0.5 to 1.0% of your account value per trade. If multiple trades are being taken, the maximum risk should never be greater than 3% of the total account value. To determine single and total account risk values take your account value and multiply it by 1% (.01). This is your max risk per single trade. Multiply your account value by 3% (.03) to get max risk of overall trades.

Now that you know your account risk limits you need to calculate the risk value of the trade. To do this subtract the stop-loss price from the order entry price. I.E. If the entry price is .52 and your initial stop-loss is around .50 your risk value is .02. You can now divide the single trade account risk value by the risk value of the trade. I.E. If your max risk per trade is $20 and the risk value is .02, divide $20/.02 to get 1000 size. I.E. 1000 units of a crypto are taken in a trade with a .02 stop-loss = $20 potential risk.

In the Kucoin futures section it will show you the initial risk when you are setting stop-loss orders. One of the nice features about kucoin futures is that it shows the calculated loss and potential profit if you decide to enter a profit order. It is good to know how to calculate risk manually though. For more experienced traders that want to increase risk/reward they can adjust leverage via the 1-5X bar in the order entry window within Kucoin. Each X increase in leverage will increase risk and reward by 100%. I.E. A max risk of $20 now becomes $40. You are essentially doubling your size per the trade. This is not generally recommended and is only suited for seasoned/advanced traders.

If a trader is sticking to the 1% max per trade or 3% overall. Even if they decide to risk 3% on only 1 trade at any given time. These should be striving for at least 10% a month on their account value. That's huge in the world of returns. It's best to "trade small." Keep size small. Do not over-leverage or increase size. Take your time, go slow and focus on the actual trade. Risking 1% per trade should make 2-3% per trade. Therefore, if high quality signal bars are the goal. 10% a month should be doable.

If the trade was taken with equity futures the trader would multiply their account value by .01 to get the max risk per single trade. Then divide max risk per trade by tick value. This gives the trader the max amount of ticks they can use per a single trade based on a single equities futures contract. From there the amount of contracts can be adjusted. Equity futures require a larger account balance to make this work as you must have the capital to support the risk/leverage. For equity futures I would always use about X% of my buying power to make X% a month. So if I was using 10% of my total buying power that was the max I could use for any or all trades in regard to minimum required to hold the contract. I would then look to achieve 10% a month.

***************** Not Intended to be financial advice. For educational purposes only!!!******************

Important Basic Rules

- One should strive to trade Signal bars that are the correct color of the desired trade direction, i.e., a long trade should only be taken off a "green" (positive) candle. A short trade should only be taken off a "red" (negative) candle. When they are not the correct color but, everything else looks good. Ways we can still take the trade are to cut size in half or tighten the stop-loss above or below the entry candles high or low depending on if it's a short or long trade.

- A stop-loss should always be entered upon getting filled in a trade. Setting an alert on TradingView will help with keeping the trader notified upon order fill so that they can swiftly place a stop-loss order. The stop-loss should be adjusted promptly at the close of every day around 5 pm pacific standard time for crypto/crypto futures and 1:55 pm pacific standard time for equity futures (right before hourly window close during weekdays).

- Half profit should be taken at 1:1-1:2 risk:reward always. The second half can be trailed appropriately for 1:3 or greater.

-Ideally the signal bar entry area should be above the 10 sma/8 ema if going long and below the 10 sma/8 ema if going short. There are times when the signal bar will be right at the moving averages touching them. This can be acceptable if it's in the context of a pullback. There will be exceptions for topping and bottoming patterns.

-If price is ranging/not moving much don't trade that specific trading vehicle. There needs to be movement. No stale price action.

-Follow risk parameters. Don't over-leverage. Don't over-trade. Be patient and wait for high quality signal bars.

It's very easy to break the rules and go up with leverage thinking more profit can be made. While this is true to a certain extent emotion starts to come into play when leveraging up which can cloud judgement. Mistakes can be made and lead to disaster. It also doesn't give enough chances for fake outs and losing trades. It's just not worth it. It's best to stick to 3% maximum overall risk or lower. If a trader feels that they can go up with leverage they must prove it to themselves paper trading the strategy.

Patience is absolutely crucial. It's easy to jump into a trade off almost any red or green candlestick. However, it's best to wait for some price action, wait for a pullback to the 10 simple moving average / 8 exponential moving averages and hope for a high quality signal bar. There are many crypto futures pairings and equity future contracts to choose from today. Many different charts to sift through over a few minutes each day to find high quality signal bars. No need to get into mediocre trades via mediocre candlestick setups.

Start with the Monthly chart to get a broader picture of the chart before working down to the weekly/daily. Remember that the daily chart is where this strategy works best. Draw trendlines to the best of your ability. Look for chart patterns and identify high quality signal bars. Look for the "bread and butter" pullback/momentum signal bar setups. These are the easiest to spot and straight forward to trade. Remember to take profit accordingly and trail the second half appropriately.

One trade doesn't make a great trader. Many trades make the trader great and shows a solid track record. It shows discipline and the ability to achieve success short and long term.

"Fake out" signal bars are just that. They look like good signal bars but, usually have small details that set them apart. Usually the real body will sit a smidge above the previous real bodies low if it is a long signal bar and a smidge below if it's a short signal bar.

Other times it'll be a signal bar in a tight range where the price isn't really moving or close enough to the moving averages. Perhaps the trader thinks price is putting in a bottom but it's really just consolidating before the moving averages have caught up. Price might go very far in the right direction before turning against the trader.

It's best to therefore get at least some separation in price from the moving averages that the method revolves around. The 10 SMA / 8 EMA.

There can also be reversal candlesticks that get put in after big moves that might never fill your order. They close and then price continues that direction. There's never an actual reversal so anyone that got in early before price actually reversed after the close of that candle is "trapped." This is why it's important to place your order after the close of the candlestick and wait for price to trade the correct direction.

There will also be times when reversal/signal bar setups will look like they are topping or bottoming. However the moving averages aren't where they should be. I.e. They may be below a topping patten/reversal signal bar and curling/heading higher. Even if the order fills at that point on an initial drop the price then trends higher and stops you out on a break of the signal bar high.

"Fake out" signal bars are just that. They look like good signal bars but, usually have small details that set them apart. In this lecture we look at examples of what "fake outs" can look like.

It's much easier to enter orders and do the charting work on a computer. However, internet and power can go out. It's necessary to have a cellphone with internet and your exchange app ready to go in case your internet or power go out. This way you can manage your trades from the phone in an emergency situation. The phone is also valuable to have as you can set price alerts in Trading View to notify you once your stop-market order is about to be triggered. This allows for a swift stop-loss order to be placed after you've been filled. Even if you didn't place a stop-loss right away after being filled the likelihood of price going against the trade and past the stop-loss area is pretty extreme. Kucoin will also auto-liquidate once the account reaches 90% max leverage.

Lower time frames just aren't worth it when it comes to running this strategy. I don't think they should ever be used for multiple reasons. The main important reasons are slippage in price, i.e. you might not even get filled at the price you want to. When you're looking to capture gains on a smaller time frame/smaller moves with bigger leverage that starts to become a bigger problem versus longer, bigger moves with less size/leverage. Emotions can run high when you're taking more trades in a smaller amount of time versus less trades over longer periods of time. This can lead to bad decisions and risky behavior. Lower time frame trading is best done during U.S. market hours which is early for west coast traders. It's not ideal. Therefore longer time frames such as the Monthly, Weekly, or Daily charts are best to follow. There are more fake outs on the lower time frames as well. Lots of potential for chop and traps. It's just not worth it trading lower time frames/day trading. It's extremely risky and requires insane amounts of discipline. It also isn't ideal for anyone that isn't living near the East Coast or in that time zone.

Thanks for making it through the course. In this lecture we wrap everything up and go over communication for questions/help.