Chapter II: Entry

II.1. Chart set-up
 

For the entry rules, we need two basic indicators:

● CCI 20 (Commodity Channel Index, Period 20, Typical Price)
● The Wave (EMA34 High, EMA34 Close, EMA34 Low)
 

The second one actually consists of three exponential moving averages, but we will treat them as one indicator called the Wave. We will call the moving averages Wave-top, Wave-middle and Wave-bottom.

The set-up for MetaTrader 4:

 
 
 

II.2. Entry rule

First, we will discuss long entries. Now, read the rules and you will learn practical implementation step
by step in the next paragraph.
● Be sure that the market is trending up.
 

Beware from the sideways market. The Wave is a great tool that helps us to determine the trend.

Trend definition:
Uptrend: The price has already crossed the Wave upward and the price is above the Wavebottom
at this moment.
Downtrend: Similarly, the market is trending down if the price is below the Wave-top.

 

● Price was above the Wave for some time.
(above the Wave-top)
● Price entered the Wave.
Price was above the Wave and then crossed the Wave-top downward.
● CCI crossed +100 line upward; A POSSIBLE LONG ENTRY SIGNAL on the next candlestick opening.
This is a good signal to go long on the next candlestick opening. But be careful...
● “Five bars check” rule.
Check that CCI was below the +100 line for at least five bars before the cross.
● Check that the market is trending up now.
Check that the price is above the Wave-bottom as in the first rule.
● Buy now!
If all above has fulfilled, buy as the new candlestick opens.

Look at the picture. We have defined an interesting pattern called the “swing”.

Simply said, price entered the Wave and then returned back up. But this sentence sounds too subjective. We have put it all into mechanical rules that are easy to follow.

Don't enter the market when you “feel” that the price is going up again. Some traders do so, but they get stuck when the price plunges lower! Don't rely on the standard breakout system. The breakout may be false. Enter only if CCI has crossed the line! Look at the picture carefully. Do you see that we have entered the market before the breakout... before the crowd?! 

Do you see the great advantage of the MagicBreakout strategy?

II.3 Practical implementation

Practically, you must follow the written rules backwards:

● CCI crossed the +100 line upward.
Was it below the +100 line for at least five bars? Is it above the +100 line now? If yes, continue to the next step. Remember, the signal is valid only if the candlestick has already closed.
● Is price trending up?
Is price above the Wave-bottom? (Stick with our definition! Don't let your feeling or intuition to define the trend! Trend definition is a mechanical task here, although sometimes counterintuitive.) If yes, go to the next step.
● Do you see a valid swing pattern?
Train your eyes on the first few trades and you will see the swing pattern subconsciously without reviewing the rules. Review: price was above the Wave and then entered the Wave. In other words, price crossed the Wave-top downward. OK?
● Buy now!
And prepare your exit targets... We can simply create the rules for a short entry:
● CCI crossed the -100 line downward.
Look at CCI when the candlestick has closed. Was it above the -100 line for at least five bars? Is it below the -100 line now? If yes, continue to the next step. We have to check market conditions.
● Is price trending down?
Is price below the Wave-top? (Stick with our definition! Don't let your feeling or intuition to define the trend! Trend definition is a mechanical task here, although sometimes counterintuitive.) If yes, go to the next step.
● Do you see a valid swing pattern?
Train your eyes on the first few trades and you will see the swing pattern subconsciously without reviewing the rules. Review: price was below the Wave and then entered the Wave. In other words, price crossed the Wave-bottom upward. OK?
● Sell now!
And prepare your exit targets...

Note: There exists a better entry and much better way how to identify the trend and filter some bad trades by looking only once on another time-frame. Such a system is a great advantage because there are only few traders watching on two different time-frames. You will learn our “Holy Grail” in the next chapters of the incredible MagicBreakout+ strategy with our proprietary indicators and alerts that will make you a top trader.