This is a trading system developed by Vegas to trade only in 1 hour price charts. Basically this trading technique is to open three equal positions (if the trading platform permits the trader can also open a position divided into three parts which can be closed independently). Another option is to divide the capital invested in the trade according to percentages, for example the first position corresponds to 50%, the second position to 25% and the third position to 25%. Each trader can decide how to work with each position.
It can be used in many markets, including Forex (any currency pair), precious metals (gold and silver), indices and other.
The methodology of this system is quite simple. Initially three exponential moving averages (EMA) are plotted on 1 hora chart:
1 EMA of 169 periods.
1 EMA of 144 periods.
1 EMA of 12 periods.
Overall, the EMA of 144 periods and the EMA of 169 periods form what Vegas called a “tunnel”, in other words a price tunnel. Meanwhile the 12-period EMA is used as a filter. In order to define the system envelopes we use the Fibonacci sequence and for this strategy the numbers used are as follows (these numbers correspond to a number of pips from the tunnel EMAs): 54, 89, 144, 233 and 377.
General rules for the trading system
Wait until the price of the asset analyzed reach the tunnel area. Each time the price breaks above the upper line of the tunnel the trader should open a long position. Conversely, if the price breaks below the lower line of the tunnel the trader should open a short position.
The stop loss and reverse positions are placed on the opposite side of the tunnel once a position is open in the market.
If the trade develops in our favor, as the market moves in the direction of our position, we can take partial profits in successive Fibonacci numbers (in the envelopes). At the same time we keep open in the market the final position portion until any of the following conditions are present:
The asset price reaches the last Fibonacci number corresponding to 377 pips from the EMA tunnel.
The price change its trend and returns to the tunnel, and passes through it up to the opposite site of the price tunnel. If the price goes through the opposite side of the tunnel we can open a trade in that direction according to the system rules.
Trading system example
Trade example with the Vegas trading system
Analyzing the price chart we can see that once the price breaks the tunnel from above (downtrend), a short position is opened which is left open until the price reached the first Fibonacci number, in which the first position part is closed. In this case, because the price reverses and returns again to the tunnel, it is best to close the remaining two portions to avoid incurring losses.
Once the price breaks the tunnel from below (uptrend), a long position is opened which is left open until the price reached the first Fibonacci number, in which the first part of this new position is closed. The second portion is closed on the second Fibonacci number in order to make more profits. Finally the third portion is left in the market in order to accumulate more profits with a bigger movement.
