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The Expo Bounce strategy uses classic ingredients like an exponential moving average and the ADX. Mike Seidl described the strategy in the Traders’ Magazine. The strategy’s concepts were also published by the well-known trader Linda Raschke, who called it “The Holy Grail”. The Expo Bounce is usually implemented as a day trading strategy on intraday time frames such as 5 and 10 minutes.
|Suitable for||: All markets|
|Instruments||: Futures, CFD-Forex, stocks|
|Trading type||: Day trading|
|Trading tempo||: Variable|
|Using NanoTrader Full||: Manual or (semi-)automatic|
Suppose the market is in a bullish trend. If the market price temporarily falls sharply and rises back up it is called a bounce. The Expo Bounce strategy trades these bounce signals.
To determine the trend, an exponential moving average (EMA) is used. In parallel, the 14-period ADX, must also meet specific criteria.
The example shows the EMA 20 in the main chart. The ADX is shown below the main chart. The coloured areas indicate the ADX is above 30, and thus in a strong trend.
A buy signal occurs when (1) the EMA 20 is going up, (2) the market price crosses below the EMA 20, and (3) the value of the ADX is above 30.
A short sell signal occurs when (1) the EMA 20 is going down, (2) the market price crosses above the EMA 20, and (3) the value of the ADX is above 30.
This example shows a buy signal. The EMA 20 is going up. At the same time the market crosses below the EMA 20. In parallel the ADX is above 30, indicating a strong trend.
The Expo Bounce strategy has a profit target and a stop loss. The solution is simple. The stop loss order is placed at the low (or the high in case of a short sell) of the last five candles. The profit target is placed on the high (low) of the last five candles. There is one overriding rule: the profit target is always placed at such a level that the Return/Risk ratio is at least 1.
The Expo Bounce strategy usually has trades with a very good Return/Risk ratio.
This example is a short sell signal. The EMA is going down. The market price crossed above the EMA 20. The ADX was above 30. The stop loss order (red line) was placed on the high of the last five candles. The profit target (green line) was placed on the low of the last five candles. The profit target was reached, and the position closed with a profit.
This example of a buy signal illustrates a perfect market bounce. These are the signals the Expo Bounce strategy specializes in. Notice the extremely good Return/Risk ratio!
Non-exhaustive back-tests seem to be a reason for optimism. This is the equity curve of trades on the CAC 40 index in a 1-minute chart.
This is the equity curve for trades on the Nasdaq index in a 5-minute chart.
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