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Technique of three bars and a stochastic for S&P 500

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Place a protective stop a tick or two at the end of the pattern. If the stop is too far away to place a stop ticks based not on dollars but that is based on a certain amount of money. 5 -) Leave the position if we have the opposite pattern that created the entry Toggle 3.

In this article we present a trading pattern or technique that is well described by Charles Le Beau and David W. Lucas in their book Day Trading Systems & Methods. According to the authors, this pattern should be used to find tops and bottoms in the markets. In this case, this formation is used by the authors to trade with the S&P 500.

Below are the steps for the identification of the formation:

  • Open a candlestick chart of 30 minutes of the S&P 500 Futures.
  • Add a 9-period Slow Stochastic Oscillator.
  • Buy at the close of the bar 3 if the following conditions occur:
    • The minimum of bar 2  is less than the minimum of bar 1  and the closing of bar 2 is less than the minimum of bar 1.
    • The minimum of bar 3 is greater than the minimum of  bar 2 and the closing of bar 3 is greater than the closing of bar 2 and the closing of bar 1.
  • The position should be open when the pattern is accompanied with a value of the stochastic less than 30 for long positions and over 70 for short positions.
  • Place a protective stop at one or two ticks from the extreme of the pattern. If this stop is too far, the best thing to do is to put a stop loss based on a certain amount of money, according to the money management strategy of the trader. In other words, the traders must use a stop loss that avoids them losing too much money in the trade.
  • Close the position if we have the opposite pattern that created the entry in the bar 3.

Below is a graphic example where this trading technique was applied:

Example of a trading technique used to trade with the S&P 500

Although this strategy was created to operate the S&P 500, we believe it can be applied in other markets such as Forex. So, we recommend to evaluate this system in a demo account of a Forex broker too.

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