What is The MAEE formula?
First, let me introduce you to the MAEE formula
(which is about trading price reversals). MAEE stands
for market structure, area of value, entry trigger, and
exits. And if you haven’t realized it yet, these are the
individual components we covered earlier (if you
haven’t read about these, please stop and go back to
page one). Here’s how it works:
Market Structure: the first thing you want to do is
identify the current market structure, so you’ll know
what to do. Ask yourself, “Is this in an accumulation,
advancing, distribution, or declining stage?” Now,
there are times when it’s impossible to classify the
market structure, and if that’s the case, move on
to something else; don’t force your analysis on the
charts.
Area of Value: next, you want to identify the area of
value so you know where to enter a trade. This can
be things like support and resistance, trend lines,
channels, etc. For example, if you’re looking for
buying opportunities, you’ll want to ask yourself,
“Where might potential buying pressure step in?”
Entry Trigger: then, you’ll want to have an entry
trigger so you’ll know when to enter a trade. We
covered an entire section on candlestick patterns
because they’re useful for identifying entry triggers.
So if you’re looking for buying opportunities, you
can look for candlestick patterns like the hammer,
the bullish engulfing pattern, and so on. Now, don’t
limit yourself only to candlestick patterns because
there are other types of entry triggers. These can be
chart patterns, indicators crossing a certain value, etc.
(The point is, keep an open mind and always keep
learning.)
Exits: finally, you have exits so you know when to exit
a trade. There are two parts to this:
- Exit when the price moves against you (otherwise known as a stop loss);
- Exit when the price moves in your favor (you can do this using target profit or trailing stop loss).
Now let me walk you through a few examples:
Example 1: GBPUSD daily:
GBPUSD is in a declining stage (market structure)
with a series of lower highs and lows. The price did a
pullback towards resistance at 1.2750 (area of value)
and formed a bearish engulfing pattern (entry
trigger). You could set your stop loss 1 ATR above the
highs of resistance (exit when you’re wrong) and
have a target profit at the nearest swing low, which
is around 1.2550 area (exit when you’re right).
Example 2: Copper 8-hour:
Copper is in a potential accumulation stage (market
structure). The price collapsed to support at 2.600
(area of value) and formed a hammer (entry trigger). You could have your stop loss 1 ATR below the lows
of the hammer (exit when you’re wrong) and have
a target profit at the nearest swing high, which is
around the 2.720 area (exit when you’re right).