Cross And Touch

Are you conservative?  Being patient, and waiting for the trend to change after price hits a zone gives you extra confirmation.  The Cross And Touch waits for a reversal, and then seeks to capitalize on it.

The Chart

Open a 2500 Volume Chart for the S&P 500 E-Mini Futures.  Configure the chart with the following set of indicators: ToTheTickZones, 20 EMA, and 50 EMA.
These settings and instructions are not necessarily "the best" or "exclusive".  You should experiment and backtest other chart types and moving averages.

The Setup

Many traders look at faster EMAs crossing slower EMAs on various minute or volume charts to determine the direction of the trend.  This is the essence of the Cross And Touch.  We think it will quickly become one of your favorite trade setups, because we use it every day!

For a long trade:

  1. Price is moving down, enters the zone and begins to consolidate.
  2. As price moves higher, the moving averages cross with at least 1 tick of space between them.
  3. Place a buy order anywhere from 1 tick in front of the 20 EMA to the 50 EMA, depending on the situation.

For a short trade:

  1. Price is moving up, enters the zone and begins to consolidate.
  2. As price moves lower, the moving averages cross with at least 1 tick of space between them.
  3. Place a sell order anywhere from 1 tick in front of the 20 EMA to the 50 EMA, depending on the situation.

Check out this screenshot:

The market opened in between two zones on September 10, 2009.  It attempted to rally, but met resistance at the lower end of our zone.  After waiting for cofirmation, the short produced a winner.  As the market sold off, it found support in the next zone.  After waiting for the EMAs to cross, the buy was another nice winner.  On a morning that appears to be choppy and diffucult, the Cross And Touch trade setup had two winners and no losses!

Profit Targets

Most trade setups are best traded with a multiple profit target strategy.  Profit Target 1 should be between 4 and 8 ticks, depending on market condition.  It is smart to set Profit Target 1 at a previous pivot high for a buy, or a previous pivot low for a short.  With Profit Target 2, one can use a trailing methodology or wait to exit until the next zone is hit.  There are many different options; study the charts and determine what is suitable for you.

Stop Loss

Our general guideline for a stop loss is between 4 and 8 ticks.  However, there is no best answer.  It is good to tighten your stop as soon as you get some movement in the direction of the trade.  Overall, you should do your own backtesting and homework to determine how much risk is appropriate for these trades.