Vegas Tunnel Trading System Complete Guide for Trading in 2021 (With Free Indicator)

Do I need to mention money management?

I didn’t think so.

At a minimum, you should be able to do 3 units to implement tunnel trading. Use the 55, 89, and 144 levels to take 1/3 off at each level. If you can do 4 units, use 55, 89, 144, and 233. 5 units are the preferable level, and you use 55, 89, 144, 233, and let one unit ride until crosses over tunnel boundary or it reaches 377.

Of course, you can make your units any size you want. For smaller traders, a unit size maybe 10,000. If you do not have the money to trade 30,000 of something, then I would advise you to save up and come back when you do. If your account has $2,000 in it, you can easily implement tunnel trading with 10k units.

One of the greatest advantages of this model is its flexibility in its design to allow you to choose the level of risk/reward you desire in trading.

You can make this as aggressive or as conservative as fits your style. I will give an example of each. These are just examples,
I’m not saying you have to do this. I’m only giving you these two to stimulate your brain. In the following day and weeks, I am confident you will find an appropriate level for yourself.

Example 1 – Very Aggressive

The tunnel is pivot level for buy/sell. Above the tunnel, buy breaks, sell at fib numbers. At 233 an 377, fade the move for a retracement. Below tunnel, sell rallies, buy at the fib numbers. Use previous fib numbers in the move as stop-loss points. This is very aggressive and would be appropriate for very short-term traders who have a time-frame of day-trading.

Example 2 – Very Conservative

Uses basic tunnel system with 12 ema. Only initiates on this signal. Looking for the best possible probability trade. Willing to give up more profitability in return for less risk. Trades three units. Uses fib numbers 55, and 89 for 1/3 each. Leaves the other unit on until 233 or market price crosses over tunnel boundary. Allows trader to catch short-term [1-5 day] profit points, and also allows him/her to ride the major trend if one develops.

As I said, these are just two of an infinite number of risk/reward scenarios you can develop using this model.

This is not some rigid system, where you have to do this or that. It is adaptable, with no right or wrong answers.

This is why many locals from soybeans to bonds to gold and silver, oil, etc. use it. I’ve seen some people who have transformed this into a model you wouldn’t recognize without knowing what tunnel trading offers.

When you get right down to it, once you have adapted it into your trading style and personal risk model, tunnel trading will give you all you want.

Momentum to catch the bigger moves over time, early profit points that allow you to catch short-term movements, and the lowest risk you can have in a trade because you are only risking 10 -25 pips on each trade. If your odds of success on each trade were 50-50 [they aren’t this low], over time you would make a fortune. If you don’t believe me, then do the math.

Precisely because of this flexibility tunnel trading is the best model I have ever seen.

The 4 Hour Vegas Momentum Tunnel Method

Step 1

Create a weekly chart [bar or candle] of a currency pair. On this chart overlay a 21 EMA [(H + L)/2], and a 5 SMA [(H + L)/2]. Note that the 21 period is an exponential moving average and the 5 periods is a simple moving average.

Now, look at the difference between the two. As a market rises overtime on the weekly chart, the 5 will rise faster relative to the 21. As the market goes down, the 5 will lose faster relative to the 21. The difference, in pips between the two, measures relative momentum of the market in real-time. Each week, as long as the number of pips keeps rising [SMA 5 – EMA 21] from the previous week, the market continues in a bull run. Once a bull run loses pips [SMA 5 – EMA 21] from the previous week, it signals a medium term top in the market. Conversely, once a bear run loses pips [EMA 21 – SMA 5] from the previous week, it signals a medium-term bottom in the market.

This now gives us [with only one week lag] a positive probabilistic model in determining which side [long or short] to initiate trades in a defined period. We are identifying market momentum.

Step 2

Create a 4-hour chart [bar or candle] of the same currency pair. On this chart overlay a 55 SMA [(H + L)/2], and an 8 SMA [Close only].

To insert fibo levels, click one of the moving averages with the right mouse button and choose properties. In the open window on the Levels tab, enter the appropriate levels as shown. Beware, however, for pairs with five decimal points, the value has to be multiplied by ten, as the system was created for pairs with four decimal places.

Now, look at the difference between the two on your 4-hour chart. Since we are using different types of MA’s and a shorter time with a relatively longer period, the two will cross many times. We call these MOMENTUM tunnels.

So, we now take a look at the weekly chart again and determine that we are in a bull run. We then take a look at the 4-hour chart. We now know that we are looking to long the market and that short positions will not be taken because they have been predetermined to be low probability events for large profits.

We now are looking for the 8 SMA to move lower through the 55 SMA. When it does, we carefully watch and notice when the SLOPE of the 8 SMA changes from negative to positive. It will do this when the 8 SMA stops losing value in one 4 hour bar and gains in the next. This is the 4-hour bar to initiate new long positions with 3 units [remember: units are whatever trading size you can handle. When you trade bigger, just adjust the size of the unit, not the number of units]. Stops can be placed using technicals [support/res/trendline] of the most recent 4-hour bars.

Assuming the market starts to go up, we stay long until 1) at some point in time the 8 SMA changes slope from positive to negative, at which point we exit the entire 3 unit trade, 2) the market moves up, there is no slope change, and goes to the 144 or 233 fib number from the 55 SMA line, where 1 unit is taken off, 3) the market moves up to the next fib number [233 or 377], again with no slope change, and the 2nd unit is booked.

Let’s now assume that the weekly chart determines we are in a bear run. We will now be looking to initiate new short positions only.

We are looking for the 8 SMA to move higher through the 55 SMA. When it does, we carefully watch and notice when the SLOPE of the 8 SMA changes from positive to negative. It will do this when the 8 SMA stops gaining value in one 4 hour bar and loses in the next. This is the 4-hour bar to initiate new short positions with 3 units. Again, stop placement depends on the technicals of the most recent 4-hour bars.

Assuming the market starts to go down, we stay short until 1) at some point in time the 8 SMA changes slope from negative to positive, at which point we exit the entire 3 unit trade, 2) the market moves down, there is no slope change, and goes to the 144 or 233 fib number from the 55 SMA line, where 1 unit is taken off, 3) the market moves down to the next fib number [233 or 377], again with no slope change, and the 2nd unit is booked.

There will be times when the slopes will change and the 8 SMA will not be above/below the 55 SMA line. In these circumstances, we use only 1 ½ unit to initiate a trade with the same rules above.

We are implementing this new 4-hour method with only 2 filters. The first is on the weekly chart. If the difference between the 21 EMA and the 5 EMA is > 500 pips, then the pip difference from the prior week must change by more than 10 pips, or just go lower over 2 consecutive weeks, to signal a trend change.

The second filter is on the 4-hour chart. If the 8 SMA and the 55 SMA and the market price are all within 50 pips or so of each other, we go to technicals [breakout] to continue the trade. We do this because, at this juncture, you are more likely to get the 8 SMA jumping up and down 2 or 3 pips every few bars, thus generating a false trade signal. It doesn’t happen very often, but when it does, using this filter can save us money, and the market isn’t moving anywhere anyway. Therefore, a breakout of the techs makes sense to initiate a trade, if it’s in the direction you are supposed to be trading.

If you now go ahead and make the charts and take a cursory look at the weekly, you should be amazed. The weekly criteria hit every single turn in the market within a couple of weeks. The fact of the matter is that the weekly difference of the MA’s TRENDS. It doesn’t change gaining/losing unless the trend changes.

The 4-hour chart is equally powerful. A more careful look at the 4 hours will show large 4-hour bar spikes that often change the slope of the 8 SMA. The reason we chose the 8 SMA with close only, is so that we can better estimate in the next 4 hour bar period the price needed to change the slope before the period is over. Many times this will give us a huge profit advantage over waiting until the period is over.