Trend Following Playbook (Spyfrat)

- Bollinger band: 50 period trend with 0.20 standard deviation

- RSI: 30 period lookback

I. HOW TO SELL TOPS: TRADING EDGE

Edge # 1: Sell patterns during parabolic

A. Parabolic Theory
- A stock is in parabolic when RSI(30) is greater than 70.
- You can ignore overbought conditions when in parabolic.
- You can ignore bearish divergences when successive impulsive RSIs are above 70. Enjoy
the run.
- But as soon as wedges, triangles, or pennants develop while in parabolic, start selling
or look to short.

Edge # 2: Bearish Divergence or Pethuel Bearish Divergence (PBD)

- PBD can provide a very strong warning signal that price is vulnerable to a deep
correction
- When PBD occurs in market indices on higher time frames (i.e. weekly, monthly), this is
a signal that a market top is in place and that this condition can trigger a bear market
type correction

A. Conditions
1. A first RSI impulse triggers a parabolic (i.e. RSI(30) >70)
2. A second impulse is a lower high RSI versus the first impulse and below 70 level
Note: PBD conditions are unusual as price corrections are typically deeper than regular
types of bearish divergence. The risk can be slow at first then fast.

II. HOW TO BUY BOTTOMS: TRADING EDGE

Edge # 3: Buying the bottom – Bebemon (Bollinger band monster)

- A buy signal is triggered when price crosses the BBand from below and
RSI(30) breaks 50
- This setup takes time to form so you need to be patient. In trading, to be early is to be
wrong so don’t be early.
- Can be applied in different timeframes
- Can be applied to securities that have been badly beaten up
- As a reversal setup, the upside is significant whereas risk is manageable
- Find a timeframe with clean and clear interaction between price and bbands.
- Setup is bullish if (1) Price is trading above or around bbands in a narrow range and (2)
RSI(30) is >50.
- Setup is bearish if (1) Pricee is below or around the bbands and (2) RSI(30) <50.