In this guide, I will cover the definition of the setup, what makes a perfect setup, profit taking, other protocols, and extra notes for specific situations.
Definition
The typical 34 setup is simply a reversal after the market retraces to the 34 EMA, and signals to resume the original trend.
This trade is taken on 1, 5, and 15m charts, and is seriously considered as a directional clue when seen on the 1H/4H/D. On the 1m chart, this happens multiple times on most days, and gives us a lot of opportunities to study the variations of this setup in different contexts.
As a result, there are a myriad ways this setup can be played, and our goal is to trade only the A+ ones, which will be guaranteed profits.
Variations
There are multiple situational variations of this setup
A+ 34 Setups
There are several components to consider here when determining if the setup is a valid A+ setup.
There are two main parts: the market context and the signal.
Context
First, the EMAs must be stacked in the direction of the underlying trend.
Second, this must be the first test of the 34 during the current wave. When the market has crossed the 0 line with a proper wave, this count is reset and we can look for a fresh first 34 test again.
Third, the underlying trend must be clear, without a higher time frame exit candle to the high/lows. This means the 5m chart should not have a reversal candle + 7J at the high/low just before it retraced to the 34.
Signal
First, the market must make a significant candle signal. This is important because this is how we take our entry with confidence. Without the significant candle, it means there could be a push against the 34 again, where a proper signal may come. The significant candle may come at a worse price than the first 34 test, but we still aim for the significant candle only.
Second, the market must test the 34 twice, with the second candle being the signal candle. We do not want the market to hit the 34 once, bounce, and immediately run again with the trend. This does happen, but it does not count as an A+ setup if it does.
Less than A+ Setups
The variations of the 34 reversal are many, even when the market context seems good, or a signal seems valid.
Large candles
The candle size should not be large. In some cases, the market will produce a massive bullish engulfing candle that will then take off for a H/L break, and even completing the break within the same candle. These are invalid and will be skipped with minor exceptions.
If we do take a larger candle, we exit at the H/L break which is usually shortly after. These are B trades and should only be taken when the market is active and the underlying trend is clearly unfinished.
HTF Stacking Protocol
A contextual tool I’ve created is a general guideline for taking profits when the higher time frames are in various phases of EMA stacking.
Notes
I have studied this setup extensively. There are a lot of notes to include here so I will dump them below, and hopefully organize them in a way that is easy to follow.
When the H/L is broken and news is coming, seriously consider exiting early even if the larger move is unfinished.