SATS5 Expert Chart Template

Avoiding Non Profitable Trades

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I think you will agree that the perfect mechanical trading system without losing trades does not exist.

Meaning that even a good basic profitable system can give still better results using technical analysis techniques to avoid some of the non profitable trades.

Always keep in mind that the mechanical system SATS5 is the boss and must stay in control synchronizing the trading process.

To help you in making decisions to override SATS5 we will use support and resistance lines, trend lines, Elliot wave analysis and some proprietary custom indicators.

To demonstrate this interaction, I will use part of the Motorola chart out of the test period. The whole test period is shown in the next figure. A buy and hold during this period gives a poor result with a loss of about 50% of the starting capital. The trading result based on the automatic SATS5 expert signals (long and short) is a lot better with a profit of 246%. But you can improve this result avoiding some non profitable trades.

Chart Template

The used chart template has 5 parts.

Part 1: Bar or Candle Chart with SATS5 Expert Attached

First there is the price represented as a bar chart or candlestick chart, color coded by the SATS5 expert. (See Expert).

As long as there are green bars (or candles) I have an open long position.

Contrary with red bars I am out of the market.

With black bars I am short.

Simple Moving Averages

Second, and shown in the following figure, I use 3 simple moving averages over the price bars. A 50, 100 and 200-bar average.

These are typical averages used to have a look at the short, medium and longer term that I will mainly use as support or resistance levels helping to decide on manual actions.

In an uptrend price will move most of the time above the 50 average.
Consolidation periods will mostly extend to falling back to the 100 average.
Breaking the long term 200 average will mostly take a longer time to recover.
As you can see in figure 3.3 a broken support will a lot of the time turn into resistance for the first price reaction. More averages around the same level will result in more strong support or resistance.

Help Indicator for Counting Elliott Waves

Third, and shown in the next figure, I am using a proprietary indicator called SVE_EW_Count, as an aid to assist in correctly counting Elliott impulse and correction waves.

The count itself is written in manually.

After a top in October 2006 price starts a long term correction wave down.

With the help of the indicator I can first label an impulse wave down 1 to 5. This is the first correction wave A down. Next there is an up correction wave B, followed by the wave C down.

Since this is probably not the end of the correction, looking at the previous long term up move, we can label this point now as a wave A of a higher degree and we call it wave (A). So, after that we expect a correction wave (B) up. And of course after that correction wave (C) down that must drop below the level of wave (A).

Bollinger Bands

Finally still within the price window, I use Bollinger bands. I am using a 20-period weighted average band on the closing prices, with the upper and lower band at 2 standard deviations.

The 20-period average gives direction to the shorter term price move and the angle of the move will many times be in line with a price trend line. The upper and lower Bollinger band can be used as a resistance and support levels.

In the chart there is a green bar buying signal half of April. But end of April there is a black bar closing signal and at the same time a signal to open a short position.

Since price falls back that day exactly to the support of the lower Bollinger band (and at the support level of recent previous lows), it is worthwhile waiting the next day before taking a decision.

As you can see that helped avoiding a losing short trade, because already the day after price started a new up move.

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