Vegas Tunnel Trading
What is Vegas Tunnel Trading
Vegas Tunnel Trading is the method used by Barry 'Vegas' Haigh, who made considerable returns trading forex specifically. But, when he shared his method for making these gains, it was received with some skepticism.
In order to understand if the Vegas Tunnel Trading method can be beneficial to you, let's first look at the different components that it is made up of, and how reliable those components are separately, as well as together.
Vegas Tunnel Trading: The Tunnel
The Vegas Tunnel Trading method received its name due to the formation of a critical, tunnel-like structure.
The first step is to make sure that the graph is set to a one hour period. It does not matter whether it is candlesticks, a line graph or anything else. Whichever you prefer will work, but the time frame is essential.
Next, two EMA indicators are set up. The first is a 169 period EMA and the second is a 144 period EMA. These will lay above the graph, and form a tunnel of sorts, as can be seen below (orange and red.)
The idea is that the use of these two EMA indicators of different periods will signal when to enter and exit a trade.
When the graph enters the tunnel, you can prepare yourself for a possible trade opportunity. When it exits the tunnel in a downward direction, it is an indication to open a short trade, while exiting the tunnel going upwards is an indication to enter a long trade.
Vegas Tunnel Trading: Filter
The next step is to attempt to reduce some of the noise that is found on an average graph. For this, an EMA with a period of 12 is opened over the graph. This can be seen in the above image (blue.) This flattens out some of the more sporadic movements of the market, and prevents false entrances into trades.
However, this can also cause some problems.
As can be seen below, if one ignores the actual market and instead relies on the use of the blue 12 EMA line, there are still a variety of different false indicators to short while the market continues to rise. In this specific instance on the EUR/USD graph below, every time the 12 EMA crosses over the orange 169 EMA, exiting the tunnel in a downward direction, if a bearish trade is entered a loss might be made if a stop loss is hit before an eventual market reversal.
For this reason it is recommended that an additional trading restriction be put in place that is not specified by the creator of the method. The signal should only be considered if the 12 EMA crosses out of the tunnel, and the EMA lines that form the tunnel reverse.
Such an example can be seen below, where the orange 169 EMA line moves to the top of the tunnel before the eventual downtrend.
However, there is still a problem to consider with this.
All momentum indicators, such as the EMA, are lagging indicators. The indicator forms as the market conditions change, and is often adjusted as market conditions revert. For this reason, any use of the EMA indicators should be done with caution.
Even with the three used together, there is still the chance of false signals and delays in the illustration of market conditions that could cause you to enter a trade after the opportunity has already passed.
Vegas Tunnel Trading: Fibonacci
In order to combat the delay that is associated with momentum indicators, fibonacci numbers can be added in levels to form support and resistance levels. It can be difficult to set up on several trading platforms, but on the MT4 and MT5 platforms it is quite simple, and can be added as levels.
It does not matter which of the tunnel EMA lines they are added to, so you can play around with it and decide which works the best for your personal trading style.
Not all fibonacci numbers are used, as can be seen above. Only the numbers from 55 to 377.
The reason why the fibonacci numbers can assist with the accuracy of the EMA lines is because they are real-time, and do not lag any more than the difference between the platform and the market. This real-time information can provide additional information.
It is important to note that more volatile currency pairs will move through the fibonacci resistance and support levels more often than the less volatile currency pairs.
Is Vegas Tunnel Trading Reliable
It is important to remember that no trading system is completely reliable and that it is always important to make sure that you have the appropriate stop losses in place so that you can manage risk. Anything that tells you otherwise is likely a scam.
However, although the creator of Vegas Tunnel Trading has confirmed that he has made a profit with this method, he has not claimed that it is perfect. But he is a seasoned trader, and it is important to remember that he is a seasoned trader.
The currency pairs that the strategy would work best on are extremely volatile, such as the EUR/USD, and these are not always the best pairs for new traders to get into. For that reason, the Vegas Tunnel Trading method is not recommended for those just starting out.
Additionally, the use of fibonacci numbers is sometimes difficult to comprehend. And it is never recommended that anything is used that you do not fully understand.
So, in conclusion, the Vegas Tunnel Trading could be useful for seasoned traders, who keep an eye on the new and use a variety of different methods to account for the lag of the EMA indicators, and who understand the use of fibonacci numbers and the effect that they have on support and resistance. But, as always, it is important to remember that, in order to keep any profits made, it is important to manage your risk, because it is always possible for mistakes to occur.