Learn From Charts
The “Gold Line” Crossover
If you read the strategies module, then you will already know what a “Gold Line” crossover is, but if you didn’t it will be helpful if I explain it here briefly. There is more detail in the strategies module. So, in brief, it is when you have two EMA’s (Exponential Moving Average) lines set on your chart to something like 9 and 26. I set the nine to be gold (or yellow) in color. When there is a major reversal (not just a minor one while the price is slightly moving up and down) and the GOLD LINE crosses the other line (usually I set it to blue), you have a very good opportunity to see the price continue up for at least one to two points, or sometimes five or ten points, often with some pull-backs.
The best entries are often after the GOLD LINE cross, but not until there is pull-back and then after several ticks of upward movement.
Many “Gold Line” cross examples below.
Now, just above, in the chart – at the bottom – I say, just take those “two wins and get out for the day,” I am talking about when you want to be very careful and you are using large contract size, like three or more contracts. Or, even if you are just using one contract, but you only have a six or seven hundred dollars in your account and you don’t want to take any trades that don’t have the very best probability for success. These “Gold Line” cross trades are generally the highest probability trades that you will find.
Below, we see two more charts showing good entries after the “Gold Line” crossover.
TWO MORE “GOLD LINE“ CHARTS
BELOW
THAT ARE THE SAME DAY —
THE FIRST IS ON THE 5 MINUTE TIME FRAME
THE SECOND ON THE 3.
Just a quick note on profit potential. If you have $5,000 in a futures broker account and open a position on one of the entries above with 10 contracts and gain 2 points (8 ticks), that is $1,000. Then subtract $5 per contract for the round-trip commission, which is $50 and you have a profit of $950. Do that twice a week (yeah, with no losses for the sake of quick math) and you have $98,800 in a year. Sure, you have to pay taxes, but you always have to pay taxes on whatever you make.
The big trick or secret to being able to do this well is not taking other lower probability trades, only these “Gold Line” trades. The second most important thing is to practice a lot with a simulator and then later with a single micro of real money, because you will need to learn how it all works in real time.
I will show a good example of lower proabability trades that you should stay out of if you want to win. Take a look at the chart below. You will see in the two large yellow boxed areas on the left that it looks like there is going to be a reversal, but after the first area it ends up going down more. Then it goes up and down for about 30 minutes. Just stay out of these. You will most likely lose a lot of money. Wait for the “Gold Line” cross.
In the next chart below you will see the same “Gold Line” cross, but in the one minute time chart.
The Pull-back
The RSI Indicator
Knowing how the RSI Indicator works is very helpful, especially so you know to watch for reversals. It should never be the only basis for getting into a trade, because sometimes price can continue much above or below the lines (30 and 70), but combined with price action and other variables it can help to set your expectation of what is likely. Notice on the RSI charts that the price often does not reverse as soon as the RSI shows below the 30 or above the 70, but at some point, usually with 7 minutes on the one minute chart, there is a reversal. The solid lines below the 30 and above the 70 is where the magic happens. Price does often make a signifcant reversal after the RSI is above 70, or below 30 for more than six or seven minutes on the one minute chart. And sometimes there is a small drop, like one point, when it first passes these high and low points. I don’t recommend getting in when the 30 or 70 line is first touched or crossed as it is usually a small move. It is also important to know where the RSI is before getting into any trade so that a reversal doesn’t happen when you are not expecting. Now, Let’s look at a few charts.
I am going to add a more recent RSI example that happened on October 3rd, 2024. This example below shows four charts of the same morning occurrence of a big RSI drop, but from four different time charts. It is IMPORTANT to understand that the RSI, on this morning or October 3rd, 2024, was above 70 on three of these four important time frames. It was above on the 1, 3, and 5 minute time frames. It was not above on the 15, which is the final chart of the four. When all three of these are above, expect a big move. These charts are very good, and shows how you can make a lot of money with this type of RSI understanding. But you will need money in your account to make money, so you can’t take bad or “not great” trades that cause losses. You need to wait for the really good set-ups like the crossovers or the following RSI drop, which doesn’t happen every day. But when it does you want to have money in your account so you get in on the big move.
The RSI indicator is at the bottom of the chart. There are two thin lines that move. Notice how on the right side, inside the circle that I made, they are above the big green line, which is the 70 RSI. You will need to go into your indicator settings to make the lines thick if you want them like this chart. You can learn more about this indicator on Google or YouTube if you want.
Now, back to the other RSI chart examples that are a few years old.
The News Reversal
There are news patterns that can used to make money. As with all patterns, they don’t always show up, but often enough that they are good to know.
I hope you enjoyed the chart show. The main thing is to learn to mainly trade the “Gold Line” crosses. They are the best. Then, next is the pullbacks. Finally, the RSI reversals and News can be great, but they can be more difficult. On reversals, it is easy to get in too soon, before the reversal actually starts. The direction change may just be a quick pullback. The RSI helps you to whether it is getting to close a reversal point, but don’t think RSI predicts the exact entry, it does not.
That’s all for the charts folks!
Stocks With Steve Copyright 2020