Track 'n Trade Bulls 'n Bears Trading System

Market Filters

Video Transcript

In this Track 'n Trade Bulls 'n Bears educational video, I want to quickly cover the use of filters. We can use the Bulls ‘n Bears filters to filter-out or filter-in certain types of Bullish Buy signals and/or Bearish Sell signals.

We have three basic filters that we use to help us identify the best Buy signals and the best Sell signals. The goal of using market filters is to improve our probability of success and helps to eliminate whipsaw.

Here's an example of a Bullish buy signal.

Notice that a Bullish buy signal is a Green price bar where the close of that price bar closed higher than the previous Yellows price bar’s close; and higher than the Green price bars open. Optimally, we would also like to see this Green price bar close higher than yesterday's high, but that's not necessary to still be considered a Bullish buy signal. Usually, for best results, this is the signal we want to see before entering the market with a long position.

Now, here's an example of a Bearish buy signal.

We have a Yellow price bar followed by a Green price bar, but notice that the close of the Green price bar is lower than the previous Yellow price bar’s close, and is lower than the open. This means that this price bar, although Green, is considered to be Bearish, due to the lower close. When we see this signal, we generally want to wait for a second bullish buy signal bar before entering long.

Now, let’s talk about Bullish and Bearish sell signals.

A bearish sell signal is a Yellow price bar followed by a Red price bar. Where the Red price bar’s close is lower than the Yellow price bar close; optimally, lower than the Yellow price bars low. Again, for best results, this is the signal we want to see before entering the market with a short position.

Of course, a Bullish sell signal would be a Yellow price bar, followed by a Red price bar, where the close of the Red price bar is higher than the close of the Yellow price bar.

If we receive this signal, we might want to consider waiting for a second Red confirmation price bar, before entering the market with a short position.

We rarely want to enter a market long, if we receive a Bearish buy signal, and we rarely want to enter the market short, if we receive a Bullish Sell signal.

The software has the ability to weed out these negative signals, through the use of filters, if we so choose.

The filters we use to ‘weed out’ bearish buy signals, and bullish sell signals are as follows:

The first filter we have that can be used with Bulls ‘n Bears is the the [Inside Days] filter. An inside day is a signal bar (Green or Red Bar), where the high and the low of the bar are “inside” the high and the low of the previous bar.

These are considered non-event days, where nothing significant has happened. We may not want to enter the market based on a signal derived from a non-eventful or neutral day. The computer can filter these out for us, if we so choose by simply checking the box next to this filter.

The [Higher/Lower Filter] weeds out buy signals where the signal bar’s close is not higher than the previous (Yellow) bar’s close, or vice-versa, it weeds out sell signals where the signal bar’s close is not lower than the previous (Yellow) bar’s close.

The [Higher/High, Lower/Low Filter] weeds out signals where the signal bar’s high is not higher than the previous (Yellow) price bar’s high.

The next filter is the [Reverse Formula Filter], have you ever thought to yourself, “Wow, if I would have just bought every time I got a sell signal, or sold every time I got a buy signal, I would have won every single trade.”

Well, we’ve thought the same thing. Sometimes you can tune an indicator or system to be to such an extreme, that it makes for a fantastic contrarian indicator, and so we have added this reverse formula filter functionality that we may consider if we ever tune the sensitivity to one extreme or the other.

The last filter we may want to consider is the filter labeled: [Arrows on all color changes] which is a filter we can use if we want our Bulls ‘n Bears to produce multiple buy or sell signals in a row, depending on the trend of the market. You would possibly use this if you missed an entry into the market and are looking for a re-entry point on an uptrend or downtrend. When this filter is left unchecked, as it is by default, Bulls ‘n Bears is a swing trading system, that gives one buy signal for each sell signal.

We’ll cover this concept more in-depth in later videos.

Now, let’s quickly discuss market entry.

There are several ways to enter the market, once we finally receive our bullish or bearish entry signal.

The most common method is to simply enter with a market order, which would get us into the market immediately.

The other method and, in my opinion, the most effective is to use a Stop ‘Entry’ Order, which sits one minimum move above the Green buy signal price bar, for a long position, or one minimum move below the Red sell signal price bar for a short position.

By using a combination of Stop Entry Orders, along with The Bull’s ‘n Bears Market Filters, we get a great combination of highly probability market entry opportunities, while weeding out the less desirable ones.