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3 Day Hammer Stocks
2/20 Day EMA Breakout System
This is one of many
great systems from Dave Landry. Basically, it is a trend following
system. It can be used as a stand alone system or as part of a
larger system. It combines a filter – the two day breakout with an
entry method.
As described by Landry
in
Dave Landry on Swing Trading, he explains that many breakouts after
rising above the 20
day EMA (exponential moving average) tend to stay above the moving average for the
majority of the trend. He also found that true breakouts occur only after
the entire day’s range cleared the 20 day ema. During an upside
breakout, the low of the price should not cross below the the 20 Day
EMA and during breakdowns, the high of the price must remain below the
20 day EMA
Buy alert. Today’s
low and yesterday’s low is greater than the 20 day EMA. Signal valid
until low touches or falls below the 20 day EMA.
Buy entry. Stop buy
.10 above the 2 day high
Long exit. Stop
equal to the 20 day EMA
Sell alert Today’s
high and yesterday’s high is less than the 20 day EMA Signal valid
until low touches or moves above the 20 day EMA.
Sell entry. Stop
sell .10 below the 2 day low
Short exit. Stop
equal to the 20d ema
Additionally,
you may want to use a
directional movement indicator to help avoid whipsaws that are common
with moving average systems when they are caught in a trading range.
For those
using Metastock, the coding is below
Enter
Long
Alert(Cross(Sum(L > Mov(C,20,E),2) = 2,.5),10) AND HIGH >=
Peak(1,Cross(Sum(L > Mov(C,20,E),2) = 2,.5) *HHV(H,2),1) + .001{10 ticks} AND BarsSince(Cross(Sum(L >
Mov(C,20,E),2) = 2,.5)) <
BarsSince(LOW <= Mov(C,20,E))
Close Long LOW <=
Mov(C,20,E)
Enter Short
Alert(Cross(Sum(H < Mov(C,20,E),2) = 2,.5),10) AND LOW <=
Peak(1,Cross(Sum(H < Mov(C,20,E),2) = 2,.5) *
LLV(L,2),1) - .001{10 ticks} AND BarsSince(Cross(Sum(H <
Mov(C,20,E),2) = 2,.5)) < BarsSince(HIGH >= Mov(C,20,E))
