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Rules for Opening a Long or Closing a short Position
The first indicator used is an 8 period exponential moving average, the orange dotted line in figure 2.1. The 8 period used is a good performing fast average to detect crossovers with the closing price.
In a standard candle chart like the above figure, a green candle has a closing price above the opening price and a red candle has a closing price below the opening price. A cross above or below the average with a closing price complies to STS8 rule number 1: "the closing price breaks above/below the 8 day Exponential Moving Average".
The first green up arrow is an open buy (close short) signal. Closing prices remain above the average until the first red arrow down. This is a close long (open short) signal.
Now closing prices stay below the average until the second green arrow. We now have a close short (open long) signal. Soon after that we have a second red and green arrow.
This is a good starting rule, but of course not all trades are profitable, especially during flat price moves, the closing price will break the average a lot.
But this is just one STS8 rule. The other rules will help avoiding non profitable trades.
For all the basic techniques, please consult my book “Capturing Profit with Technical Analysis”, published by MarketPlace Books and available HERE
We will be color coding the candles by an expert system later on.
An unfilled (white) candle is a green candle in the previous figure (close>open) and a filled candle (green, red or black) is a red candle (close<open) in the previous figure.
We will use the expert color coded chart from here on.