Where trends are clean enough for a first pullback to mean something
The setup needs orderly trends and produces very few signals per instrument, which makes a watchlist a requirement rather than a convenience.
Key takeaway
- Because it only takes the first pullback, one instrument may produce a handful of signals a year
- A watchlist of ten to twenty liquid instruments is what makes the frequency workable
- Liquid futures and FX suit it best; gappy instruments defeat the tight stop
The frequency problem, and its solution
One instrument produces a valid setup only when a new trend establishes itself and then pulls back for the first time. That may be three or four times a year.
The answer is breadth rather than looser rules. A watchlist of fifteen liquid instruments produces a workable number of signals while keeping every one of them a genuine first pullback, and it is the standard way this setup is run.
The alternative — trading later pullbacks on the same instrument because nothing else is signalling — is the failure mode the whole setup is defined against.
Where trends are clean
| Market | Fit | Note |
|---|---|---|
| Liquid futures | Excellent | Raschke's own domain; orderly retracements and deep books at the average |
| FX majors | Excellent | Continuous trading, no gaps, and clean trend structure |
| Large-cap equities | Good | Works well, with earnings dates as the hazard for a tight stop |
| Small caps and thin instruments | Poor | The spread is a large fraction of a 2% stop |
The daily half hour
- Scan the watchlist for ADX above 30 and rising, and note which instruments have newly qualified.
- Mark the qualifying date. This is what lets you identify the first pullback later.
- Check whether any marked instrument is pulling back to its 20 EMA.
- Place or adjust the trigger orders, and manage anything already open toward its target.
These are documented methods described for study. Nothing here is investment advice, a recommendation, or a claim about future returns — every system on this page has losing periods, and the pages say where.
Reading about a system is not having one.
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