Why is the Vegas Tunnel considered the most classic trading strategy? Is it really that amazing?

Preface

Today we will explain a classic trend trading method, the Vegas Tunnel trading method. If you are still in the learning stage of trading, finding it difficult to grasp the trend direction and haven't formed your own fixed trading strategy, then this sharing is very important for you.

The Vegas Tunnel trading method is a classic and efficient trend trading method, very suitable for traders who want to improve their trading success rate and achieve stable profits. If you are still exploring trading strategies, understanding and applying the Vegas Tunnel trading method will be greatly beneficial to you. Through learning and practice, you will be able to independently judge market trends, seize opportunities, and achieve stable profits.

Characteristics of the Vegas Tunnel trading method

1. Trend-following trading: The Vegas Tunnel trading method is a trend-following trading method suitable for use when market trends are clear.

2. Clear exit points: This method has clear exit points, allowing you to accurately determine when to exit a trade, lock in profits, or cut losses.

3. Filter out false breakouts: The Vegas Tunnel trading method has rules for filtering out false breakout signals in the market, helping you avoid common traps and improve the success rate of trades.

4. Easy to grasp: The rules and operational steps of this method are very clear, making it easy for beginners to learn and master.

In this content, we will comprehensively introduce the Vegas Tunnel trading method. It mainly covers the following aspects:

1. Introduction to the Vegas Tunnel trading method: A detailed introduction to the basic concepts and historical background of this method.

2. Characteristics of the trading method: Discussing the main characteristics and advantages of the Vegas Tunnel trading method.

3. Trend judgment principles: Explains how to accurately judge market trends using this method.

4. Practical application: Demonstrating how to effectively use the Vegas Tunnel trading method through specific cases in actual trading.

Basic concepts

The Vegas Tunnel is an indicator tool for analyzing market price trends, consisting of two groups of exponential moving averages (EMA):

1. Two tunnels

The first group is 144EMA and 169EMA.

The second group is 576EMA and 676EMA.

Two groups of exponential moving averages will each form a tunnel during the price trend process, and this tunnel is called the Vegas Tunnel. The Vegas Tunnel has important guiding significance for the medium to long-term price trend.

The Vegas Tunnel (144, 169) is a watershed for medium and short-term trends in the market. It can guide direction and serve as support and resistance.

Composition of the Vegas Tunnel

2. Filter signals

Vegas proposed the concept of breakthrough when defining the tunnel trading method. What is the concept of a breakthrough?

We look for entry and exit signals, always operating after the price breaks through the tunnel. Introducing the concept of a filter line — the EMA moving average with a period of 12.

The orange moving average is EMA12, which is the filtering signal line.

The role of the EMA12 filter line

EMA12 is a filter line used to filter out false breakouts in the market. Specific applications are as follows:

1. Conditions for going long:

   1. Price and EMA12 must both break upwards through EMA144 and EMA169 simultaneously to consider going long.

2. Conditions for going short:

   1. Price and EMA12 must both break down through EMA144 and EMA169 simultaneously to consider going short.

Through this filtering mechanism, not only look at the price breakouts but also reference the EMA12 signals to ensure the reliability of the signals. Only when the price and EMA12 signals are consistent should you conduct a trade; otherwise, consider it a false signal.

Application examples of the filtering mechanism

The following is an example to help better understand the application of the filtering mechanism:

1. Bullish signal filtering:

   1. Suppose at a certain point in time, the candlestick price temporarily broke through the medium-short term Vegas Tunnel (EMA144 and EMA169).

   2. If at this time EMA12 does not simultaneously break upwards through the tunnel, it is considered a false signal, and do not enter a long position.

2. Bearish signal filtering:

   1. At another point in time, the candlestick price temporarily broke through the medium-short term Vegas Tunnel (EMA144 and EMA169).

   2. If at this time EMA12 does not simultaneously break down through the tunnel, it is considered a false signal, and do not enter a short position.

For example, at the two positions indicated by the arrows in the above chart, although the candlestick price temporarily broke through the medium-short term Vegas Tunnel, EMA12 failed to break down simultaneously. These two positions are both false signals, and according to the Vegas Tunnel trading method, one should avoid entering short positions. This filtering mechanism can effectively reduce false signals and improve the success rate of trades.

3. The rules of Vegas moving averages

• Fibonacci

  • The 144 in the tunnel comes from the Fibonacci sequence. Fibonacci is not a man-made creation, but a natural law that universally exists in the physical world, discovered and summarized by mathematicians. In the trading market, no single individual or institution can absolutely control the trend. The market is a combined force of countless powers, and this combined force will present itself in a natural state. Therefore, Fibonacci has the ability to predict the market. For more knowledge about Fibonacci, you can refer to this article: What is Fibonacci? Why is its success rate so high in trading?

• Numerical cycles and square relationships

  • The 144 and 169 numerical cycles used in the Vegas Tunnel trading method actually originate from square relationships:

  • 144 is the square of 12 (12²=144)

  • 169 is the square of 13 (13²=169)

The existence of this relationship allows the Vegas Tunnel trading method to not only consider the natural laws of the Fibonacci sequence when choosing cycles, but also integrates its unique internal multiple relationships, forming a more stable and scientific cycle system.

In fact, the 144 and 169 moving averages on the 4-hour chart correspond to the 576 and 676 of the 1-hour level. The 144 and 169 moving averages on the 1-hour chart correspond to the 576 and 676 of the 15-minute level. Vegas believes: you should always operate in accordance with the 576 and 676 moving averages. Abandon trading opportunities that do not align with the direction of 576 and 676, and only pursue trend-following trading opportunities.

Basic usage

After understanding the concept of the Vegas Tunnel trading method, we can more clearly recognize its characteristics and application methods. The Vegas Tunnel trading method mainly relies on four moving averages to form two tunnels, thereby judging market trends.

The Vegas Tunnel uses exponential moving averages (EMA) to judge and track market trends. Four moving averages form two tunnels, guiding trading strategies through the golden crosses, death crosses, bullish arrangements, and bearish arrangements of the tunnels.

There are three points to note during the actual trading process with Vegas. They are:

• Choose core levels

• Define trend

• Verify support and resistance

Next, we will elaborate on the three core operational points.

1. Choose core levels

Vegas himself recommends levels of 1-4 hours. However, when using it, if you want to do ultra-short-term trading, 5 minutes or 10 minutes is also fine; if you want to do longer cycles of daily trading, that is also possible.

It is recommended to choose a few levels that suit you, based on personal character, patience, and practical habits; for example, you can select 15-minute, 1-hour, and 4-hour tunnels, which are in a 4-fold relationship. The lower level of 576 and 676 can serve as a principle reference for the higher level.

BTC 15-minute level bearish trend

BTC daily level bullish trend

Different time levels respond at different speeds; the smaller the time level, the faster the response. Looking back at historical candlesticks, you can easily find that the bullish and bearish transition trends in larger levels appear earlier in smaller levels. At the same time, the volatility of trends in smaller levels is also stronger, which may contradict the trends in larger levels. If you do short-term trading, you can focus on trends in smaller levels, and please lock in your core levels based on your operational cycle.

Large level trend upwards, small level trend fluctuates.

2. Define trend

With the help of Vegas's EMA moving average, we can clearly see the direction of the trend through the tunnel.

In smaller time frames, such as 15 minutes to 3 hours, a golden cross can serve as the beginning of a trend reversal.

In larger time frames, due to the lag of golden crosses and death crosses, you may find that when you enter, it is already the beginning of a bearish trend. Therefore, larger daily levels are more suitable for observing the slope of the EMA.

Taking the daily candlestick as an example, if the candlestick is above the moving average and the moving average is sloping upwards, it can generally be considered that a bullish trend at the 12h level has begun. You may consider entering when it pulls back to the moving average, and the greater the slope, the stronger the trend.

Bullish and bearish arrangements:

Example

For instance, in the situation shown in the lower chart, the green area forms a bullish arrangement, while the red area is in a consolidation state.

1. Entry timing:

   1. In the green area, the medium-short term tunnel and long-term tunnel directions are consistent, both upward, and the price is above the tunnel, which is a time to go long.

2. Wait for the opportunity:

   1. In the yellow area, the medium-short term tunnel direction is downward, but the long-term tunnel direction is upward, indicating inconsistency. At this point, it is not suitable to enter a trade, and patience is required.

Golden cross and death cross:

Moving average characteristics: Golden crosses and death crosses can serve as signals for reversing the bullish and bearish situations.

Long-term trend judgment

Do not reverse the 4-fold principle.

1. Long-term trend moving averages:

   1. The EMA576 and EMA676 are four times the cycle of medium-short term moving averages, used to judge long-term trends.

2. Operate in accordance with the major trend:

   1. Regardless, you must operate in accordance with the major trend. If the direction of the medium-short term moving averages does not match the long-term trend direction of EMA576 and EMA676, you should abandon the operation and wait for the best opportunity.

   2. Only when the medium-short term trend is consistent with the long-term trend should you conduct a trade. Otherwise, the market may be in a turbulent and disorderly state, requiring patience.

Some final personal suggestions

1. Lock in cycles

   1. It is possible that on the weekly and daily levels, the overall price is in a downward trend, but there are multiple upward waves in the medium-short term. According to your trading frequency and time cycle, lock in your chart cycles. For example, for day trading, you can lock in minutes, 15 minutes, and 30 minutes levels; for weekly trading, lock in 1-hour and 4-hour levels.

   2. If you do not lock in, switching back and forth between large and small cycles may lead to conflicts between the two.

2. Trend conformity between small cycles and large cycles

   1. The 5-minute line should follow the trends of the 15-minute and 30-minute; if the opposite occurs, do not trade. Only participate in trend-following trades with a high success rate.

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