9/30 trading setup is by Mike Bruns on Trading Naked (now defunct), a site with lots of trading wisdom. Highly recommended. In fact, TradingNaked inspired this collection of trade setups.
Trading Rules – 9/30 Trading Setups
This trading setup uses two moving averages: the 9-period exponential moving average (EMA) and the 30-period weighted moving average (WMA).
- 9 EMA above 30 WMA
- Close below 9 EMA (More conservatively, entire bar below 9 EMA)
- Place buy stop order above the high of the bar that closes below 9 EMA
- 9 EMA below the 30 WMA
- Close above 9 EMA (More conservatively, entire bar above 9 EMA)
- Place sell stop order below the low of the bar that closes above 9 EMA
9/30 Trading Examples
Winning Trade – Long 9/30
The chart above shows the daily prices of CBRE Group Inc (NYSE). The 9 EMA is orange, and the 30 WMA is red.
Price pulled back and closed below the 9 EMA for a 9/30 trading setup at the bar before the highlighted bar.
However, the buy order above the high of the bar was not triggered. The next bar went entirely under the 9 EMA, setting up a conservative 9/30 setup. The buy order at the high of this bar was triggered, and the price shot up over 20% in the next two months.
The long bottom tails at the 30 WMA showed clear buying, but the signal bar was a doji with a small bear body. Hence, the conservative trader could wait to enter on the next test of the 30 WMA which occurred four bars later.
Losing Trade – Long 9/30
In a different daily chart of CBRE Group Inc, we saw the marked bar close above the 9 EMA. Hence, we placed a sell order below its low. The order was triggered, but prices moved up right after our short entry and never looked back.
TradingNaked stated that the “most reliable entry occur the first time there is a crossover of the moving averages.” This trade was exactly the first one after a moving average crossover, but it failed. Possible reasons included the prior upwards trend and the rather bullish signal bar (the marked bar).
Review – 9/30 Trading Setup
The strength of the 9/30 trading setup is its simplicity. It is simple to understand and gives the trader more time to observe the price action. TradingNaked also mentioned that “those who focus their decisions almost exclusively on price bars should find it helpful”.
The conservative trade with a higher probability of success requires the entire bar to be below the 9 EMA, highlighting the importance of extent of the pullback in a trend. The greater the pullback, the more likely that the trend resumption is imminent. However, if the pullback is overdone (as a guide: more than 70% of the previous move), the trend may have ended.
Traders should use this trading setup for retracements rather than reversals unless there are compelling reasons to consider a trend change.