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Perfect Order
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Perfect order no longer holds and the 20-day SMA moves below the 10-day SMA. This occurs on December 16,2005 , when prices open al 1.1420. The total profit on this track is 410 pips. We risked 97 pips.

Figure 8.27 is a perfect order formation in the USD/CAD. The forma­tion materialized on September 30, 2004 . We count five bars forward and enter into the position at 1.2588 with a stop at 1.2588. The pair then proceeds to sell off and we look to exit the position when the perfect order formation no longer holds. This occurs on December 9, 2005 , at which time we buy back our position at 1.2115 for a 443-pip profit while risking 149 pips.

…price level than the 20-day SMA, which is higher than the 50-day SMA. Meanwhile, the 100-day SMA would be below the 50-day SMA, while the 200-day SMA would be below the 100-day SMA. In a downtrend, the op­posite is true, when the 200-day SMA is at the highest level and the 10-day SMA is at the lowest level. Having the moving averages stacked up in sequential order is generally a strong indicator of a trending environ­ment. Not only does it indicate that the momentum is on the side of the trend, but the moving averages also serve as multiple levels of support. To optimize the perfect order strategy, traders should also look for ADX to be greater than 20 and trending upward. Entry and exit levels are difficult to determine with this strategy, but we generally want to stay in the trade as long as the perfect order holds and exit once the perfect order no longer holds. Perfect orders do not happen often, and the premise of this strategy is to capture the perfect order when it first happens.

The perfect order seeks to take advantage of a trending environment near the beginning of the trend. Here are the rules for using this technique.

•  Look for a currency pair with moving averages in perfect order.

•  Look for ADX pointing upward, ideally greater than 20.

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