The Bollinger Dna Method

THE BOLLINGER DNA TRADING METHOD el,: By By :

Tymen Wortel, Perth, Western Australia.

Perth, Western Australia Chief Administrator, The Official Bollinger DNA Forum.

TABLE OF CONTENTS

FORWORD

FORWORD SECTION 1 : Introduction SECTION 2 : Features of the Bollinger Bands

FORWORD

• The Squeeze Area • The BB bubble • The BB sausage

SECTION 3 : The 4 Types of Trades

The DNA Method is my second trading method the Candlestick • Theafter O-O developing trade Trading Method. The DNA method is a vast improvement on the Candlestick • The O-BB trade method. • The O-M trade The Candlestick method was not my original idea, and it was developed following a Theof RO trade request to do so. The work involved 2•years hard research plus the input of a SECTION 4 : The Count Back Line great many traders to give feedback and testing. Even after all this work, the • Shape 1 – 2 candles Candlestick method is not a great success and never became popular. Its • Shape 2 –most a single candlecandlestick strengths were in its very detailed treatment of the successful • the Shape 3 – contract cutting the candle in half patterns and also its very astute use of multiple tactic.

SECTION 5 : No Trade Areas SECTION 6 : Trading Tactics and Money Management • The Stoploss • Trading Tactics

FORWORD

SECTION 7 : The Parabolic Sar as a Trailing Stoploss and Exit.

FORWORD The DNA Method is my second trading method after developing the Candlestick Trading Method. The DNA method is a vast improvement on the Candlestick method. The Candlestick method was not my original idea, and it was developed following a request to do so. The work involved 2 years of hard research plus the input of a great many traders to give feedback and testing. Even after all this work, the Candlestick method is not a great success and never became popular. Its strengths were in its very detailed treatment of the most successful candlestick patterns and also its very astute use of the multiple contract tactic. Apart from those strengths, however, the method was a hair trigger method, actually relying more on 2 indicators added afterwards than the original candles. Its success was dubious at best, and any loss was catastrophic. As a result, the method, although very accurate in its design, failed to accomplish its full potential, and, therefore, did not catch on in popularity. The Bollinger DNA method is different. It came about because I was studying the Bollinger Bands and a sudden flash of insight came to me. It did not take long after that to put the vital pieces together to form the DNA method. Therefore, this method is all my own work this time, with no input from any other source. The Bollinger DNA method is a true success. It really works. It has an incredibly high win rate and therein lies its strength. When people first come to forex trading, they learn all the basics and the terminology. They then search for a trading method. There are as many trading methods available as there are traders!! But 90% of these methods are quite useless and bring ruin in the long term. The remaining methods have all got one thing in common – a high risk/reward ratio and a very mediocre win/loss ratio. These trading methods that remain are fine for the experienced trader. Such a trader is accustomed to a string of losing trades. However, the high risk/reward compensates – the profits are much larger than the losses, so it is possible to sustain several losses without breaking your account. Completely unknown to him, the new trader is in trouble with these methods. He goes ahead and trades with such a method but is soon scared off when a price retracement comes. He reacts differently to this retracement. Whereas the experienced trader perseveres with the trade (and knows when to exit), the new trader looks at the retracement in horror and exits prematurely. In doing so, he does not get the benefit of the high risk/reward ratio, in fact his status is more like risk = reward!!

As a result the new trader does not make any outstanding profits. Then, when the string of losses come, he has not accumulated the profits to withstand the losses. So the outcome is that the new trader thinks the method does not work. He then goes and finds another method – but exactly the same thing occurs because the new method may be different in design but has the same risk/reward and win/loss ratios. After trying out several methods, he becomes a method gypsy not settling down to good trading. Finally, after losing considerable funds, he concludes the forex is gambling and, therefore, dangerous. The end result is that he does one giant trading exit – the exit of the forex market itself. He never returns. The Bollinger DNA method is the solution to the new trader. The risk/reward and win/loss ratios are completely different from all other trading methods. The win/loss ratio in most trading methods is very mediocre. However, in the DNA method, the win/loss ratio is extremely high, so high in fact, that it can be difficult to lose at times. Therefore, this method is ideal for the new trader – he begins to make winning profits immediately. In addition to this, his confidence is boosted to an amazingly high level, thus allowing clear thinking to keep making even more winning trades. The risk/reward ratio of the DNA method is also different. Unlike the high risk/reward of the standard methods, the DNA risk/reward is diminished. Often risk = reward. However, a multiple contract strategy is introduced to offset this, this returning the advantage back to where it should be. The new trader can live with the occasional loss, even if it is above average, because the many winning trades simply swamp the losing ones. The sheer success of the Bollinger DNA method is shown by the fact that it has a very large following, with many of those traders solidly building their accounts. A whole chatroom and a forum have been set up specially devoted to this method. A better recommendation one could not get. I will go so far as to say that the Bollinger DNA method is one of the finest forex trading methods ever invented.

I commend the Bollinger DNA Trading Method to you……

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SECTION 1 INTRODUCTION It was some time ago that I was reading my copy of John Bollinger's book "Bollinger on Bollinger Bands" that I happened on some sort of discovery. I remembered what I had discovered and in the days afterward I looked further into this and discovered even more and the outcome was quite startling!! Yes, I had made a discovery!! Whether it is new or others knew about it I do not know. What I do know is that this stuff has never before been made known anywhere. And it is the stuff from which a 90% or more win/loss ratio is generated!! I put it to extensive tests and it passed with flying colours every time!! This amazing method was rock solid and did not fail. What is it? It is the DNA of the Bollinger Bands!! Now I am going to firmly introduce you to the Bollinger DNA system. In order to do that I have to take care of knowledge assumed, that is, to make sure everyone is on the same footing. I am sure that most people know about DNA, but I will just revise the biological basics here so that no one misses out. Please understand that I am not trying to insult your intelligence. I just want to make sure that every reader here has the same background knowledge. You never know when someone misses out. Medical people, will of course know much more about this than I will ever know. I am only a school teacher!! Anyway, the background for starters........ These diagrams below, shows the 2 strands of nucleotides making the "uprights" of the "ladder"

The deoxyribose (pentagons) and phosphate groups (dots) make up these uprights while the ladder "rungs" are made up of 4 nitrogen bases. These bases are shown in the next diagram. There are 4 bases linked in twin pairs - adenine, guanine, cytosine and thymine. Lets now look at how this is similar to the Bollinger DNA system....... The nucleotide uprights of our ladder are two uprights. They are the two outer bands of the Bollinger bands. The rungs, the nitrogen bases, are the price action elements as the price oscillates between touching the BB. This idea may not be so original, but the sheer power comes in when we use a 2 contract strategy to trade with. We have many trades, in any timeframe, with an extraordinary degree of reliability in making a profit. Lets go into the method in detail by looking at the 4 types of price action that are contained within the Bollinger bands.

Before we can do this, however, we need to first look at some features of the Bollinger Bands themselves………

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SECTION 2 FEATURES OF THE BOLLINGER BANDS When you load the Bollinger Band indicator, hereafter given as BB, on your charts, you can basically see three types of patterns : • the squeeze area. • the BB bubble. • the BB sausage. Lets have a look at a description of each :

The Squeeze Area This is simply an area of price action where the BB are narrow. To work out what is a squeeze area we really detect what is NOT a bubble or a sausage. To do this, we need to know what a bubble and a sausage look like also. Below are examples of squeeze areas……..

The Bollinger Band Bubble The bubble is characterised by a sudden expansion, then followed by a contraction. The resulting BB pattern looks like a bubble. The price action in these bubbles walks the outer BB. It is very important to note that the price walk finishes and goes inwards when the opposite outer BB starts to contract. Here are examples of a bubble with price action going up and a bubble with price action going down. Note how the price action goes inwards at the black line which marks the point of opposite BB contraction………..

We now look at these bubbles with regard to the opposite BB contraction.The bubble usually has a very smooth, sexy shape and hence I give them female names. The bubble is divided into 2 colours, the first colour being the expansion part and the 2nd colour being the contraction part.. Note how the price action behaves after the contraction – it breaks contact with the outer BB, then goes back to the centre and on to point P.

It should be noted that although most times the price action goes towards P, it is also possible for the price action to go level as shown by the yellow arrow. The price action walk of the outer BB is fully exploited for maximum profit in the DNA method.

The BB Sausage The sausage is an extended form of bubble. After the opposite BB contraction, the price action does not go to the centre as in a bubble. Instead, it just continues on the BB walk. Sometimes, a very small move to the centre may occur, giving the impression of a bubble. But this is short lived as the price action returns to the BB walk. The continued walk may be on the BB or just inside it a little. The outer BB may start to expand again also. This expansion/contraction may occur several times in the formation of a sausage. Below are examples.

Note how the price action simply ignored the opposite BB contraction point shown by the black line. There may be a temporary break from the BB walk, but it soon returns to continue the walk. A bubble may then turn into a sausage, but a sausage can never be a bubble. Therefore, it can be difficult to tell upon the opposite BB contraction, whether the price action goes permanently inwards (a bubble) or whether the price action may resume the original walk (a sausage). One way of telling is to see if the pattern shows a smooth sexy shape – in which case you are more likely to have a bubble. The sausage is much more rugged in shape and hence I give them male names. Here are the schematic diagrams of the sausage ……

We now take the original chart and colour in the bubbles and sausages as well as the squeezes. The squeezes were originally in green, now we add the bubbles in blue and the sausages in brown.

There are, of course, areas which are very difficult to classify and may be hybids of these 3 patterns.

The most important matter here is to be able to classify the BB pattern as one of the three patterns.

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SECTION 3 THE FOUR TYPES OF TRADES We now go into the method in detail by looking at the 4 types of price action that are contained within the Bollinger bands. As stated previously, the Bollinger bands themselves are like the outer strands of the DNA molecule, while the 4 types of price action are like the 4 nitrogen base types making up the gene code. These price action types are best shown with diagrams. However, the aim of the trade is to go from one of the outer BB to the other outer BB. In a squeeze area, this is straightforward – the entry is made at one outer BB and terminated at the other outer BB. In a bubble, the entry is made in the squeeze beforehand, then the exit is made at the end of the BB walk – easily spotted with the opposite BB contraction. In a sausage, the entry is made in the squeeze beforehand, but the exit is more complex and the parabolic sar is enlisted to give the correct exit. The direction of the mid BB also plays a very important part in determining what type of price action we see. Of the 4 types of price action, only 3 are tradeable. The 4th type is a loss price action and the method is such that we see it coming so we do not trade it. Here now are the 4 type of price action and where they occur in the 3 BB patterns. The first is made in a squeeze area and is called an O-O trade. (outer to outer).

The O-O trade is the simplest type of trade. Using a special technique, the entry is made from one outer BB and the trade is simply exited when the price action touches the other outer BB. The mid BB tends to be somewhat level during these squeezes. A sloping BB shows price action quickly turning into a bubble or sausage. The next type of price action, the O-BB trade (outer to BB walk), commences in the same way in a squeeze area. However, the BB expand and a bubble is formed. Here, the exit is only made after a walk of the outer BB. Therefore, it is also a much more profitable trade. Here is the diagram of the O-BB trade……….

Above we have a diagram of a long trade of type O-BB. The entry is in squeeze area (green) and the price action walks the upper BB of the bubble. The exit is made when the opposite (lower) BB contracts and the price action retraces inwards by going either level or downwards. The same action takes place upside down for a short trade. For sausages, the parabolic sar is used to set the exit point. The parabolic sar can also be used in general fashion for both bubbles and sausages. A full explanation is given later.

The O-M Trade We now look at the 3rd type of trade, the O-M trade. (outer – mid BB). This type of trade is used when the mid BB is sloping in a direction that is against the direction of our trade. Example – going long but the mid BB is sloping down. So far we have only considered trades with the mid BB either level (squeezes) or going in our direction (bubbles and sausages). However, there are cases where the mid BB is sloping against our trade direction. These may be in squeezes that are not level. We could also enter a new trade at the exit point of the O-BB trade above. That is, we would enter at point X and head for point P.(red part of arrow). By doing so we are trading against the direction of the mid BB as shown. In the O-M type trade we enter at the outer BB as before and we like to aim for the opposite outer BB as before. However, since the mid BB is sloping against us, we do not expect the price action to go past the mid BB. The trade, therefore, ends at the mid BB. After this, the price action goes against us and retraces. We do not trade this retracement because we would lose. Here is the diagram of the O-M trade……………

The green arrows show the O-M trade. The entry is taken at the outer BB and exited at the mid BB. The red section is the rest of the price action which retraces and goes wherever. This red part is untradeable because it retraces and its final outcome is unknown.

The red part is also the 4th type of price action being an RO price action (retrace back to outer).

The RO Trade The time when the 4th type of price action really affects us is shown below………

In this trade, the mid BB is against us and, after entry, the price action does not even get as far as the mid BB. Instead, the price action retraces past our entry point giving a loss. This RO price action is a loss trade and can be anticipated when the mid BB is against us. We can not be sure if we are going to get an O-M trade hitting the mid BB for a profit or an RO trade which falls short of the mid BB and thus giving a loss. Summary The 4 price action types are : • O-O (outer/outer) for squeeze areas. • O-BB (outer/BB walk) for squeezes to bubbles/sausages. • O-M (outer/mid) for times when mid BB is against us. • RO (retracement/outer) failed trade.

SECTION 4 THE COUNT BACK LINE The count back line is a very special method used to make the entries for this DNA method. It allows price action to go to an extreme, then an entry is made when the price action starts to bounce back again. The principle here is that we assume that the extreme point is the end of a minor trend. By setting an entry point some distance from this extreme point, we make sure that this minor trend has indeed ended and we are entering on a new trend in the opposite direction. The following diagram shows the principle of operation………….

The extreme point of the price action is easily found – it extends past the outer BB. Subsequent candles being less extreme confirm that we have the extreme point. The entry line is set to a simple formula and ensures that the price action is well on its way in the new direction so that there is no danger of a sudden retrace. The count back line is the procedure by which we get to enter at one outer BB and exit at the other. According to the diagram, however, we have a modification in that we actually enter slightly inwards from the outer BB by entering at the black entry line. So how does all this work?

REMEMBER AT ALL TIMES THAT THE METHOD INVOLVES TRADING FROM ONE OUTER BB TO THE OTHER OUTER BB. There are 3 matters we must consider in drawing a count back line (CBL)…. • 3 different shapes of CBL. • finding the extreme candle. • the contraction of the opposite BB. Lets start by looking at the 3 different shapes of CBL.

SHAPE 1:

2 candles.

Here we have a downtrend and the lowest candle is chosen (the last candle in the trend). By lowest candle, I mean the low of the candle. In downtrends, we always consider the low of the candle when drawing a count back line (CBL). A line is drawn to the top of the candle, then left till it hits the next candle, then up to top again.

The final line is extended to the right and becomes our LONG ENTRY line for when the trend goes up again. When the price action touches the CBL, we enter immediately without waiting. Note how in this case we have used 2 candles. When the body of the extreme candle is larger than the body of the previous candle, then 2 candles are used to form the CBL.

SHAPE 2:

A single candle.

We note here that only one candle is used in setting the CBL. When the extreme candle body is smaller than the previous candle body, only one candle is used to form the CBL. Again, when the price action touches the CBL, we enter immediately without waiting.

SHAPE 3:

cutting the candle in half.

When we draw a CBL we always expect it to form an entry line well below the mid BB. This is because we are looking to trade from one outer BB to the other outer BB. Therefore, if the CBL is too close, or even passing thro the mid BB, we effectively ruin our entry. This 3rd CBL shape is especially designed to correct this problem. The principle is simple………. When we find an extreme candle and the CBL (either 1 or 2 candle combination), we measure the total height (of 1 or 2 candles) and cut it in half. The halfway point then forms our CBL. These diagrams show how it works……..

In the above diagram only one candle (the extreme candle) is used for the CBL. This is because the previous red candle body is larger than the extreme candle body. Now remember the trading method – to go from one outer BB to the other. We notice that the extreme candle wick extends right up to and touches the mid BB, making it rather useless as and entry line.

We solve this problem by cutting the extreme candle body in half shown by the blue entry line. The LONG entry is then made in the following candle (green) as soon as the price action touches this entry line. Lets now look at an example where 2 candles are used…………..

In the above case, an extreme candle is found and the count back rule requires 2 candles this time because the body of the extreme candle is larger than the body of the previous candle. We then join the 2 outermost points of the two candles as shown. The resulting blue line is then cut in half and the entry line drawn as shown. As you can see, the LONG entry in this case would be near the top of the next candle (green). Again, the entry is made immediately without waiting. We now look at some examples of the count back line where SHORT entries are given. The procedure is exactly the same, except from the top. The CBL are now taken from extreme candles that pass thro the upper BB instead of the lower BB. The following diagrams are examples…………..

In the above chart we have a SHORT trade, with the CBL being made from an upper BB extreme candle labelled A. Two candles are used because the extreme candle body, A, is larger than the previous candle body, B. Note how the CBL is drawn. The entry line gives a SHORT entry at candle C. Now for a single candle SHORT entry below…………..

The procedure in this single candle CBL is self explanatory. Again, as soon as the price action touches the CBL, a SHORT entry is made immediately without waiting.

We now look at how the extreme candle is discovered and found to be the true end point of a minor trend.

In the following sequence of charts, note how the CBL changes and the result is the discovery of the true extreme candle.…..

In the above chart, candle A is the extreme candle so far. Candle A has a smaller body than previous candle B, so only one candle CBL is used as shown. We wait for the development of the next candle to see what happens.

In the above chart, the next candle, (candle C) has now developed. It has a lower wick, therefore, is the new extreme candle. Again, a smaller body, hence a one CBL drawn from candle C. We continue on…….

In the chart above, the next candle, (candle D) has developed. It has a lower wick, therefore, is the new extreme candle. Candle D has a larger body than previous candle C, so we draw a 2 candle CBL, which turns out to give the same entry line as the previous entry line.

We now continue to wait for an entry…..

Candles E and F do not have lower wicks, so candle D remains the extreme candle. The CBL from candle D passes over the tops of candes E and F but intersects candle G – immediate LONG entry. Note how the mid BB is going down – against us. Therefore, we expect an O-M trade only. This trade dictates the exit at the mid BB. The same candle G where we entered LONG, also rises to touch the mid BB. So we would exit at the point where candle G touches the mid BB. As a result, this would be a very short trade, but one that gives profit. Afterwards, the price action does indeed go the wrong way and if we remained in the trade, we would get a loss.

We now look at the importance of the opposite BB contraction. In the bubble below we are going to see a most important point.

After watching the candles develop, candle A is seen as the latest extreme candle. Therefore, a CBL is drawn from it which intersects candle B. (pink CBL). An immediate LONG entry is made but the price action goes DOWN instead and we have a LOSS. What is wrong? Again we notice that candle B is now the extreme candle and a CBL is drawn from it. (Blue CBL). Two candles later we get intersection with an immediate LONG entry. However, the candles go DOWN and we get another LOSS. What are we doing wrong? The answer is shown with the yellow and white colouring of the bubble. The opposite BB (upper BB) is shown to contract in the yellow area. It is still expanding in the white area. The successful CBL LONG entry is made at candle C which is in the yellow area where the opposite BB is now contracting. EVEN IF THE CBL IS ALREADY DRAWN, NEVER MAKE ENTRIES UNTIL THE OPPOSITE BOLLINGER BAND STARTS TO CONTRACT.

SECTION 5 NO TRADE AREAS We now discover that there are certain areas where it is not wise to trade without a great deal of caution. Examine the following chart of a sausage……

Suppose we want to do a SHORT trade in the direction of the red arrow shown. As the extreme candles continue to develop, there are at least three cases being A,B, C on the chart that produce CBL that intersect price action as shown. In each case a SHORT trade would be started off, and, since the mid BB is against us, we would expect only O-M trades that end at the mid BB. However, we can see that of the great many candles in the BB walk, not one candle touches the mid BB. All 3 attempts, A,B and C would produce LOSS trades. In bubble and suasages, starting a trade after the BB walk finishes, and going against the direction of the mid BB is fraught with danger.

The LOSSES you see in this chart are very typical of what happens when trading against the mid BB in a bubble or sausage. These dangers do not occur in squeezes. Therefore, it becomes necessary to make a definition of what we call NO TRADE AREAS. A NO TRADE AREA IS THE END POINT OF A BB WALK IN A BUBBLE OR SAUSAGE. A TRADE COMMENCED FROM THIS POINT THAT GOES AGAINST THE DIRECTION OF THE MID BB HAS A HIGH PROBABILITY OF LOSING. This definition is true for both LONG and SHORT bubbles/sausages. When the BB walk is completed, deciding to take an O-M type trade starting from the end of the walk and going against the mid BB is not a good decision. The probability of LOSS is very high. Here is a chart showing the NO TRADE AREA for a bubble going LONG. The NO TRADE AREA is the yellow or red arrow after the BB contraction startS. That is, a trade from E to point P is a very high risk trade. Exactly the same is true for a bubble going SHORT. SAUSAGES are even more difficult to trade against the mid BB.

THEREFORE, WHEN DOING AN O-M TRADE AGAINST THE MID BB, IT IS BEST TO DO IT FROM THE SQUEEZES AND TO STAY AWAY FROM THE END POINTS OF BB WALKS IN BUBBLE AND SAUSAGES.

Having said that, there are some exceptions to this rule….. You can trade the NO TRADE AREAS if……….. • You are a very experienced trader. • You are operating on a timeframe greater than 2 hours. • You are quite certain that you have a bubble and not a sausage. • The daily major trend is in your favour. • You know to set the exit well before the mid BB if necessary. Generally speaking, it is best to keep out of these trades. The best you will ever do is to exit at the mid BB. The O-BB trade, commenced from a squeeze area, and finishing with a BB walk in a buble or sausage, is a much more profitable prospect. So far, we have looked at the basic structure of the DNA method. We now have to look at how to actually implement the trade itself. We need to introduce the position of the Bollinger bands in the trade and set up the trade itself. This will require 2 contracts and hence we need to know where to exit each contract. In addition, we need to know exactly where to place the stoploss. The stoploss will become a trailing stoploss in the trades later on. In order to do this we will need to become familiar with the parabolic sar and learn and understand some rules to effect the exits.

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SECTION 6 TRADING TACTICS AND MONEY MANAGEMENT The Stoploss Setting the intial stoploss is easy. Later we will see how to make the stop loss into a trailing stop loss using the parabolic sar. In the following diagrams, we see how to set the initial stoploss...

Trading Tactics We now look at the trading tactics which give this method extra power and the money management to go with it. The trading tactic is to use 2 entry contracts instead of just one. The 1st contract is exited early on so that we have an intiial profit. The 2 contract tactic has the following advantages…… • The 1st contract, being exited early, boosts confidence. • If the 2nd (main contract) fails, we still have the first contract. • The stop loss can be moved to break even after getting the 1st contract, so that if the 2nd contract does not win, it also does not loss anything either. The stoploss is set with 2 contracts in mind. We now look at diagrams which explain how to use the trading tactics for the 4 types of price action. They are the same for both LONG and SHORT trades.

tp1 = take profit 1. This is the 1st contract. In an O-O trade in a squeeze area, the 1st contract is exited at the mid BB.

O–BB TRADES

Again the first contract is exited at the mid BB. The 2nd contract is exited when the opposite BB starts to contract. At this point the price action will go inwards or level, so the exit is at the correct point for maximum profit. O-M TRADES

The price action in an O-M trade is going against the mid BB. However, we still set TP2 at the other outer BB because there is still a chance that the price action may actually get there. If it does not, and goes in the way of the red arrow (RO), then we get only TP1. This is the most likely senario. However, if the price action goes all the way to the other outer BB, we then collect TP1 + TP2. We do need to make allowances for the small chance that we get both profits. The 4th type of price action (RO), needs no discussion since it is a losing price action and is not traded. We now go on to learn how we can use the parabolic sar in our DNA trades. The parabolic sar will serve 2 purposes : • It will take over the stoploss to convert it to a trailing stoploss. • It will give our exit signal when combined with a set of special rules.

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SECTION 7 THE PARABOLIC SAR AS A TRAILING STOPLOSS AND EXIT When the price action is doing a BB walk as in a bubble or sausage, the parabolic sar comes into its own as a very special trailing stoploss and final exit indicator. Firstly, 2 charts, then a full explanation of the rules to use this exit method.

In both charts we are trading a sausage pattern. The Bollinger Bands and the parabolic sar have been added. The BB are in pink while the PSAR is in dark yellow. The parabolic sar is in line form rather than dot form because the line form is easier to see and understand. Small red extension lines are drawn from the PSAR at certain candle intervals. If the price action intersects these red lines, that means EXIT. The yellow area is where the parabolic sar crosses the mid BB. Both trades are LONG O-BB trades. Everything is the same for the SHORT case – everything is just upside down. We first look at the entry…… In chart 1, we have a 2 CBL entry and the result is too close to the mid BB so we cut the CBL in half. The CBL is then drawn and entry is made on the very next candle. In chart 2, we have a single CBL entry and the line is drawn. Entry is made on the very next candle. In both cases, the stoploss is shown with a red line extending to the right.

After the entry TP1 is made at the mid BB in both charts. The stoploss in both charts is not changed until the red line touches the PSAR. The stoploss then becomes a trailing stoploss as the small red extension lines show. In the white area, the PSAR is our trailing stoploss. If the price action were to hit this PSAR, we would exit immediately. However, the PSAR is programmed such that it is impossible for the price action to hit the line – and we take comfort from this fact. When the PSAR crosses the mid BB (yellow area), the mid BB takes over to become our final stoploss. At this point we continue to draw our extension lines and we watch the price action. The PSAR then inverts (line at the top), and the last red extension line is drawn just as the PSAR inverts.

We now have some rules. 1) If, after inversion, a candle WICK passes thro the extension line, we DO NOT exit. 2) If, after inversion, a candle CLOSE passes thro the extension line, we DO INDEED EXIT. 3) If, after inversion, a candle hits the opposite outer BB, then we EXIT at that point for maximum profit. 4) If the price action in the yellow area HITS THE MID BB at any time, we make immediate EXIT. In chart 1, we saw the inversion, then the CLOSE went thro the extension line. We therefore, exited at candle X for TP2. This is according to RULE 2. In chart 2, we saw the inversion, then a candle WICK went thro the extension line at candle A, and we DO NOT exit. (RULE 1). We watch the price action, we also observe the PSAR returning to standard, and we see candle X touching the upper BB. We therefore, exited at candle X for TP2. This is according to RULE 3. In these 2 charts we did not see the price action hit the mid BB at any time, but this possibility does indeed occur. If it does, we EXIT immediately according to RULE 4.

Using the PSAR for stoploss and exits becomes very profitable for sausages. If you are absolutely certain that you have a bubble, then it is better to exit at the time of the opposite BB contraction.

WE ARE NOW AT THE END OF THE DESCRIPTION OF THE DNA METHOD.

HAPPY TRADING.

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