The Nitty Gritty

The above Candle Formation (CF) is what I’ve come to call the “DBRS” (developed on the MetaTrader 4.0 platform). In its purest form the CF is simply an Engulfing Bull / Bear (EBull, EBear) candle formation. However, not all engulfing CF’s work. Take, for example, the EBull CF 6 candles before. Why would I not enter there? It did not comply with one of the rules for the DBRS. The following are the Rules for the DBRS, Version 2.0, as I see them, on this day that God made. I’m sure there will be revisions as I tweak and tune this system. BTW, the name DBRS came from the people who led me to see this setup. D: Danny Mono, B: Burkie Murray, R: that’s me, Richie Chin and S: system. Thank you guys!

A few Notes:

  1. Click here for the Meta 4 DBRS Version 2.0 template.
  2. I am assuming that you have a working knowledge of the MetaTrader 4 platform.
  3. The Inner Bollinger Band (BB) is the 1st Deviation and the Outer Band is the 2nd Deviation. The Middle Band (I refer to this as “the middle”) is a 20 MA and the Yellow Band is a 6 MA.
  4. The 3 indicators (my FxTrifecta) Stochastic, RSI and MACD are all loaded into 1 “window”. The result is that they move in synch, however, the MACD looks a little different than if it was in its own window. The resulting FxTrifecta interplay is important and magical as you will see later. The ATR is in its own window (because it ran amuck when put with the others…lol).
  5. A Morning Star (SM) or Evening Star (ES) can be substituted for the EBull or EBear, however, I prefer the latter.

 

RULES:

  1.  The DBRS shows up on all time frames. Depending on your EM you can choose the TF that suits you the best. The Stop Loss (SL) is at the high / low of the CF. (I put it 1 pip above / below) Generally if it breaks the high / low the trade failed and we are possibly setting up for deviation. I generally take trades off the 30 second (on Oanda), 1 min and 5 min time frames. I watch the 15 minute as my main chart and I use the 4 hour for Trend direction. (If you are not using multiple screens then I’d say to layer the 1/5/15 to watch the price action).
  2. The DBRS is an EBull / EBear CF that breaks the inner BB (touches at the very least) and preferably goes to the outer BB.
  3. At least One of the FxTrifecta (STOC, RSI, MACD) MUST be OverSold (OS) or OverBought (OB). Preferably all 3 will be OS / OB adding to our probabilities.
  4. The DBRS CF must be the lowest / highest CF when it forms. An example of this is above. Prior to the first DBRS CF in the example above, there was a EBull 6 candles before. It was not valid for a couple of reasons: it did not break the BB and there was a candle with a wick 3 candles before the CF that was lower. Am I saying that inside DBRS’ do not work? Nooo, but you lower the probabilities and then you are trading just to trade…. not to have an ever increasing Equity Curve!
  5. The CF must have candles that are “meaty” (as Burkie says), full bodied candles and you want at least two candles leading into the CF to be smaller than the CF itself.
  6. You want zero to tiny wicks on the DBRS candles but if there is a small wick then you certainly want it in your direction. If, for example, it is a Long DBRS then the wick on the EBull must be at the bottom of the candle to increase your probabilities.
  7.  It is preferable (read higher probability) to have the meaty Bull / Bear candle close at or above the open (if it’s a EBull) or close (if it’s a EBear) of the previous candle. In the example above the first DBRS had the EBull candle close above the open of the bear candle before it.
  8. The Entry is a the open of the next candle after the DBRS candle formation.
  9. When to Take Profit (TP)? The Holy Grail question! The DBRS does tend to go from Band to Band (B to B), however, TP at the “middle” is the safe trade or at least move your SL to Break Even (BE) at the middle. This is where the ATR comes in. It will give you an idea of what to expect. Generally you want the distance to the middle to be close to your SL (1:1). Of course the time frame you enter the DBRS on is the key factor to your pip expectancy. I’d say 3-5 pips for the 30 sec TF, 5-10 pips for the 1 min TF and 8-15 for the 5 min TF. Can the DBRS go more on each TF? Absolutely, much more but this is where Managing the Trade comes in (a work in progress for me). In the example above from the first DBRS entry, the ATR was @ 11 the SL was 13 and the distance to the band was 28 and the trade went 90 plus pips off of a 5 min TF. It is interesting to see where the Bands are in relation to the Fibs and Support / Resistance areas.

 

Increasing Probabilities:

  •  Trading is all about probabilities, so it is best therefore, to have the wind at your back and pile on the probabilities.
  • As far as indicators go I use three. Stochastic, MACD and RSI. Yes, I know they are all lagging indicators but they do give a measure of the trend. Price is the only real true indication of the market, however, where it will go… nobody knows. (Which is why we all stare at the screen like zombies).
  • The more of my three indicators that is OB / OS when the DBRS fires off… the greater my probability of a successful trade.
  • The FxTrifecta is when a OB / OS Stochastic crosses an OB / OS MACD as well as a OB /OS RSI!  As Dan (the “D” in DBRS) says “it’s a beauty…put on the mask…”
  • But wait…there’s more. If you get the FxTrifecta WITH deviation (the more of them that has deviation increases the probability) on all three then wow…what a beauty…put on the mask….start the truck!!!
  • I do pay attention now to the Big Numbers (as Craig Harris calls it) 00, 20, 50, 80. In the example above, the second DBRS formed at the 50 Big Number. (Click here for a link to Craig’s Site)
  • Piling it on. Adding Fibs, support / resistance and trend lines also add to your probabilities. DBRS’ that show up at fib levels .382, .50 and .618 have huge potential. Throw in a DBRS at a Fib level with a trend line break or bounce at an established support / resistance level and …you get the picture…. a Jessie James Trade (as Dan “The Man” calls it)!!
  • The Mental game. Enough cannot be said about this and its importance to having consistently successful trades. My focus is now on being consistently successful, not ,as I did before, on hitting a home run on every trade.

 

That’s about it (for now, as I am in a “constant state of learning” lol). Questions and comments are welcome and please let me know how it goes. God Bless.