Let's look again at the chart I posted previously, but this time with some entry arrows added.



We get a short entry signal when the following rules are met:

1. Red MA above Green MA on main chart and daylight exists between them.
2. Price closes below Green MA on main chart.
3. Red MA above Blue MA in sub-window and daylight exists between them.

Vice versa for long entry signals.

As you can see from the chart, we had two short winners and one long loser. Also notice the period leading up to the first entry. There was no daylight between the red and green MAs and very little daylight between the red and blue MAs. This is what attempts to keep us out of sideways markets.



In the above chart we have 5 entries, with 1 loser, 3 winners and 1 trade in progress.

When it comes to exits, you have various options. You can either:

1. Exit when the red and blue MAs both start to slope in the opposite direction in the sub-window.
2. Exit when the red and green MAs cross again.
3. Exit when the red and blue MAs cross again.
4. Exit when you reach a set profit target (for example, a percentage of ADR or a multiple of ATR).

Each option has advantages and disadvantages so you should establish which suits your trading personality and risk profile. Some of you will prefer to let a trade breathe to catch the occasional big runner, others will prefer to extract smaller profits more regularly.

In terms of stop losses, I take the same approach with this strategy as I do with Roadmap. I do not believe in being taken out by a stop loss. Instead I look to exit manually when I am proven wrong. In this case, any of the exit criteria above could be used to be a sign of being proved wrong.

However, that's not to say we should trade without stops. I believe in emergency stops far away from price. They simply exist as a fall-back if something major happens or if I unexpectedly have to leave my screen for a period of time.

There is also the option of adding to a winner if you want to stack trades. This approach won't be for everyone so I won't go into too much detail now but essentially you are looking to add when you are a certain number of pips/points ahead with the aim of capitalising on a trend you have found yourself in.

I have deliberately posted 15 minute charts as I believe they should be the smallest timeframe you trade this strategy on. You are welcome to try lower timeframes but be warned that the noise will likely reduce your profitability. Higher timeframes should be fine however, if this suits you better.

*Edit* - Indices can be traded profitably on 5m timeframe.

I also deliberately chose the thickness of the lines for the sub-window MAs. This is important when you consider that daylight between thinner or thicker lines would be different.

I don't really trade Forex much these days as I prefer to trade indices, gold or oil. But if you are a Forex trader, you need to be aware of when news is due that could impact the pair you are trading. I would advise being flat before major news if at all possible.

So, there you have it.

That is Daylight.

I will try to post lots of live examples in this thread over the coming weeks but please do feel free to ask if you have any queries in the meantime.