Matrixchannel™ Indicator

Below are possible uses of the Matrixchannel Indicator

Any trade you take should be within your own risk management protocols

Suggested trading rules

ENTRIES

Short Entry on Market Reversal (including a MOVING AVERAGE. On the Day Trading chart, we show a 22-bar exponential moving average):

If the below three conditions are met individually and exist at the same time, taking a short position is viable.

1. The market goes to a resistance level and then comes back down; and

2. The market closes below the moving average; and

3. The moving average turns down or is already down.

Long Entry on Market Reversal

If the below three conditions are met individually and exist at the same time, taking a long position is viable.

1. The market goes to a support level and then comes back up; and

2. The market closes above the moving average; and

3. The moving average turns up or is already up.

Short Entry on a break BELOW a new Matrixchannel line:

Entering on a falling market breaking below a new line is a valid entry, but is higher risk.

Entering any trade close to the moving average is usually a lower-risk trade. Further from the moving average has higher risk.

Long Entry on a break ABOVE a new Matrixchannel line:

Entry on a rising market breaking above a new line is a valid entry, but is higher risk.

Entering any trade close to the moving average is usually a lower-risk trade. Further from the moving average has higher risk.

Candlestick patterns:

Short Entry, using Bearish candlestick patterns:

When the market is going up into a resistance-Matrixchannel lines, and the candlesticks start creating one of the negative, bearish patterns, then it’s reasonable to use that candlestick pattern as the basis for going Short.

Long Entry using Bullish candlestick patterns:

When the market is going down into a support-Matrixchannel lines, and any of the bullish Candlestick patterns are developing, then it’s reasonable to use that candlestick pattern as the basis for going Long.

Combining Candlestick Patterns and Moving Average for Entry:

When a Bullish or Bearish Candlestick pattern happens at the same time as the Moving Average turns Up or Down, that can be used as confirmation for each direction, for a higher-probability Long or Short trade.

EXITS

Short Exit: it’s viable to exit a trade at the next lower line or cluster, if the profit potential is larger enough (based on your risk/reward parameters).

Long Exit:  it’s viable to exit the trade at the next higher line or cluster (if your risk/reward parameters fit your risk tolerance).

See below for Exit techniques for clusters.

You may choose to stay in trades longer, because often the moves continue further. But we don't have specific suggestions on that, at this time

STOP PLACEMENTS

Always use a Stop: Place a stop above the nearest swing-high for a short trade, or swing-low for a long trade. You can trail it with a number of different techniques.

Also refer to Stop place in the explanation of Matrixchannel clusters.

CLUSTERS of MATRIXCHANNEL LINES

When Matrixchannel Lines cluster together (as in a bunch of them are near each other), often a big space shows between the clusters (because they are quantum levels of the same lines). 

ENTRY on breaking Above or Below a Cluster:

Short Entry: When prices break down below a cluster, and several trading bars close below it, it’s viable to take a Short position. (Stop placement is always recommended. A viable Stop position for a Short entry is above the highest bar that closed below the cluster.)

Long Entry: When prices rally above a cluster, and several trading bars close above the cluster, it’s viable to go Long. (Stop placement is always recommended. A viable Stop position for a Long entry is below the lowest bar that closed above the cluster)

ENTRY on Market Reversal between clusters

Short Entry: When prices rise above a cluster, and reach the next upper cluster, often the market will reverse, and then head back to the lower cluster. This can be a Short entry, IF the Moving Average has also turned down. (This is a higher-risk trade, but is useful if the moving average is in the Short direction.)

Long Entry: When prices fall below a cluster, and reach the next lower cluster, often the market will reverse, and then head back to the upper cluster. This can be a Long entry, IF the Moving Average has also turned up. (This is a higher-risk trade, but is useful if the moving average is the Long direction.)

EXITs for clusters:

From a Short position: Exit when the market reaches the highest price of the lower cluster.

From a Long position: Exit when the market reaches the lowest price of the upper cluster.

CLUSTER OPTION TRADES:

From One Cluster to the Other: In the most recent year, about 75% of the time the market shoots quickly to the next cluster, once it gets above or below a cluster. This shooting activity could produce a reasonably good option trade. Because if the market moves, it will move quickly. To use this: you can buy a short-term option with very good leverage.

Within a Cluster: Often, when the market is in the middle of cluster, it can take a lot of time to get through that cluster. The market bounces up and down amongst the lines, which is more of a trading range behavior. You might consider selling options when the market is in that range, where it's bouncing around in a group of lines. 

HOWEVER, SELLING OPTIONS CARRIES MUCH GREATER RISK THAN BUYING OPTIONS. ONLY SELL OPTIONS IF YOU ARE WELL EXPERIENCED AND KNOWLEDGEABLE IN THAT FIELD

ICHIMOKU CLOUD INDICATOR: This is included, using Allen’s unique settings that make the Cloud much more relevant to shorter-term trading.