Trendlines with Heiken Ashi and Stochs S

***** Updated January 20, 2012*****

I noticed that a few new readers have come in since this thread started again. The first 9 pages provide some good information, but the latest incarnation of the system begins with this article.

http://www.forexfactory.com/showthre...92#post5288392

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A while ago I made a post trying to help new traders who might be having a hard time. Unfortunately, due to my over enthusiasm for the business membership post, it was moved to the business section. (I understand why the forum moderators did this and have no complaints).

***UPDATE: I have removed the content of the original thread that put it into the business section. While the system described there is slightly different than the one I've covered here, there's a lot of good information and a lot of diagrams you might find interesting that I don't want to cover again here, so here are the links you might want to take a look at. http://www.forexfactory.com/showthread.php?t=304375 ***

I started this article by giving some of my history and briefly describing how I started making money trading. In this article, I will not repeat all this information, but just introduce a system. I'm sure if you want to read this thread you probably know how to find it and you might find some useful information.

The system I present here is slightly different than the one I've presented on other threads. I have included a few indicators in this system because although I can trade just fine without them, I believe that from a new trader's perspective it may be useful to provide these indicators to help spot good trades and help develop entry and exit rules for good trades.

The system uses trend lines, close 100 EMA, heiken ashi candles and stochastics drawn on monthly, weekly and daily charts.

Drawing a trendline can sometimes be a tricky problem, but to simplify the matter let's just say that to draw a trendline you simply connect the lows in an uptrend to the highs in a downtrend. There are many chart examples to follow.

A note about trend lines. I start by drawing a trend line on the monthly chart. These monthly trend lines are the most reliable s/r levels on the chart. They do tend to cause price reactions, if not outright trend reversals. Also, as I stated in another post, I did draw 2 contact trend lines, meaning the first contact was the starting point of the trend line and the second contact was the first connection point. Many people will tell you that a trendline is not a trendline until the third touch, and I mean it, but a 4 or 5 touch trendline starts with a 2 touch trendline.

I use trend lines because they are a good, reliable (on higher timeframes) place to look for reversals in trend direction.

I use the 100 EMA closing price to help define the long-term trend. Generally speaking, I only trade in the same direction as the moving average slope unless a strong pattern is formed, such as a flag or triangle.

I use Heiken Ashi candles, which are average price candles because they filter out a lot of the noise from regular price action. Trendline color changes supported by Stokes in the main trend direction give good signals. Additionally, they can help you stay in the industry longer because you're less likely to worry about day-to-day noise.

I use stochastics (8, 3, 3, low/high, simple) to confirm price reversals. Of all the oscillators, I find the stochastic indicator to be the best at representing changes in price momentum. I've posted a few posts on another thread explaining why I don't like the terms overbought and oversold. Nothing has changed and I still don't like them, but I do find that stokes can be useful when looking for good reversals as long as you are trading with the trend. I also believe that defining a good entry point for new traders will be easier if you use these visual aids.

I will post more chart examples and give detailed entry and exit rules soon. By the way, this is a system for trading the daily chart, so if you like to trade a lot, this is not the system for you. If you want to make money and don't want to pay a broker a fortune on spreads then you might want to read more.