The 3/8 Trap

Identify the trend

Higher highs and higher lows for an uptrend. Lower highs and lower lows for a downtrend.

Confirm the hold, not the cross

When the 3 EMA holds above the 8 EMA, momentum is confirming an uptrend. When it holds below, it is confirming a downtrend.

A cross is only an event. The 3 can cross the 8 and cross right back two candles later. What matters is whether it holds. The hold is the filter. The setup is the trade.

Check location

Near support in an uptrend. Near resistance in a downtrend.

Entry: one of two setups

Confirmation is not an entry. You still need a trigger.

• Pullback Opportunity. Trend and hold in place, price pulls back to support, and buyers step back in. Buyers stepping back in at support is your entry.
• Pop Out of the Box. Trend and hold in place, price moves sideways in a tight box, then pops out in the trend's direction.

In a downtrend, the same two setups work upside down.

Stop: price is your stop

Put it where the chart proves you wrong. For a long, below the pullback low or below the box low. For a short, above the rally high or above the box high.

Risk in dollars before entry

Divide your risk in dollars per trade by the distance from your entry to your stop. For example, $300 of risk on a $1.50 stop is 200 shares.

Two to one or better. If the reward is not at least twice the risk, pass.

Manage and review

Take profits into strength. Honor the stop. Log the trade. Cash is a position: a missed trade is not a loss.