The Delineator Analytic - Short Trades
The Delineator is a disciplined decision making methodology that identifies short term trading opportunities. Entering and exiting an actual trade is done in a precise order from the signals generated by the Delineator.
The following is a step by step example of a Short Trade execution as it would be seen on the Delineator system in real time:
Entering The Trade:
Figure 4-1
1) The Delineator has a negative slope change. This is the first sign that a new short signal could be generated. However, an actual trading signal is not generated by a slope change. Additionally, the indicator line will be blue (following the slope change) if the slope change direction is confirmed by the secondary indicator or grey if not confirmed by the secondary indicator.
So:
Step1:
- Have a slope change, indicated by an down arrow.
- For now, wait.
Figure 4-2
Step 2) When the indicator spreads to a calculated amount (representing that the slope of the Delineator cannot reverse), the indicator line turns green. This is the initial trading signal (Early Enter Short). However, it is crucial to point out that when the indicator first generates a signal (when the delineator line first turns to red) it is subject to reversing within that bar (time frame) and nullifying the signal. So confirmation, the actual signal, creates a position wherein it would be impossible for the Delineator to reverse within at least 1 full trading day. This means that counter trend price moves create opportunities for additional profit because as the price action will move back in the direction of the signal.
Figure 4-3
Step 3) Final Confirmation, Enter Trade. When the red dot appears on the chart that is your signal to enter your short trade.
Exiting The Trade:
Figure 4-4
Step 4) Assuming you use the initiation of a short trade as a point in time to begin whatever strategy you may use, plus a buck for example, the Primary Delineator down cycle ends when the Primary's slope changes. Trading from enter short to exit short rarely achieves a profit! The Delineator wasn't designed to tell you WHEN to take your profits (see Strategies - Taking Profits on Long Trades below), just when to trade and in what direction.
Figure 4-5
Step 5) Final confirmation, Exit Trade. When the first bar (rollover) appears after the slope change, exit the trade.
Note: While the indicator may appear compressed and ready to change slope, you should NOT try to anticipate the change but rather wait for it to actually happen.
Strategies - Taking Profits on Short Trades:
How you decide to trade is, of course, your own decision. Personally, I find my trading to be most effective if I stick to one simple trading strategy: trade for a $1 change in the ETF I am trading. As soon as I have entered a trade, I immediately put in a GTC sell limit at "plus a buck" from the signal price. If the limit is executed, then I have successfully traded a short signal. If the Delineator issues an Exit Short signal before my sell limit is executed, then I will sell the position at that time and cancel my limit and wait for the next signal.
I have traded this way successfully
since 2001 without regard to what was going on in the overall market
and economy. Volatility manifests itself by expanding the
daily ranges of most securities, certainly all ETF's. If you're
trading for a specific amount that doesn't change, "plus a
buck" for example, then volatility reduces your risk because
it becomes easier to achieve your goal.