Secrets and Nuances of Vegas Tunnel Trading

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23 Jan 2024

The Vegas Tunnel Trading System For MT4 is a highly effective approach for engaging in currency trading on the Forex market. The system was created over 15 years ago by Barry Haigh, a former trader, who generously shared the methods and rules of his system in a document.

This approach stemmed from something other than a profitable betting method. Instead, Haigh opted to use his nickname "Vegas" in online forums, where he freely shared his extensive knowledge about his system. This is how the moniker eventually came to be associated with him.

Vegas provides a comprehensive breakdown of his system in "The Tunnel Method." However, this article will give you a condensed version so that you can quickly understand the essential aspects and apply them immediately.

The Vegas Tunnel Trading: What Is It?

Vegas Tunnel Trading is a trading method employed by Barry 'Vegas' Haigh, who achieved significant profits by focusing on forex trading. However, when he revealed his approach to achieving these improvements, it was met with a certain degree of doubt.

To determine the potential benefits of the Vegas Tunnel Trading method, let's examine its various components and assess their individual and collective reliability.

Learn How to Trade Using the Trading System of the Vegas Tunnel

To begin using this system, you must adhere to the instructions provided below, which have been categorized into two sections. One aspect to consider when searching for a suitable configuration is the criteria to be mindful of, while the subsequent section entails guidelines for effectively handling your trade.

Trading Configuration:

  • Add the three Exponential Moving Averages to the chart.
  • Choose an EMA from the tunnel and input the values 55, 89, 144, 233, and 377 into the levels tab for the EMA. To achieve this, double-click on the indicator and navigate to the levels tab.
  • Now, it's essential to take note of the current positions of the price, 144-period EMA, 169-period EMA, and 12-period EMA.
  • If all three exponential moving averages (EMAs) are in close proximity to the current price (within a range of up to 5 pips), consider executing a trade once the price breaches the tunnel.
  • If the price breaks above the tunnel, consider placing a buy trade. Conversely, if the price falls below the tunnel, consider placing a sell trade.

Managing Your Finances:

  • When you're engaged in a trade, consider setting up a stop and reverse order on the opposite side of the tunnel. (Typically, this is the opposite side of the entry. If the entry were to sell at a level slightly below the 144-period EMA, the stop and reverse order would be placed at the 166-period EMA, which is typically higher in this scenario.
  • The entirety of the trade volume will be gradually offloaded once it reaches the Fibonacci levels.
  • The trade will be finalized either when it reaches the final Fibonacci level or when it hits the stop-loss on the other side, and a counter trade is initiated.

The Most Important Example

Let's examine the daily pattern of Bitcoin in early 2023. Following the price surge above the Vegas tunnel, there was a noticeable shift as the 12EMA rose above the tunnel. Meanwhile, the Bitcoin price saw a slight decrease. In theory, this moment symbolized the perfect chance to make a purchase.

The presence of the two yellow circles suggests that, despite the Bitcoin price successfully surpassing the Vegas tunnel, the 12EMA filter did not drop below the tunnel. Consequently, the price quickly regained its momentum and surged above the Vegas tunnel once more, suggesting a deceptive breakout. Therefore, there was no necessity to dispose of Bitcoin.

If a trader had bought Bitcoin when it was priced between $20,000 and $21,000 in mid-January, as shown by the white circle, and kept it until early August, the value would be $29,000. If there were no indications of the price and the filter decreasing beneath the tunnel, they would have generated a minimum profit of 40%.

Not Very Big Case

Given the time it typically takes to come across a favorable trend on a larger scale, traders who operate in the medium and short-term can seek out trading prospects on a smaller scale, such as within one hour. As depicted in the white circle in the image above, the price of Ethereum surpassed the upper band of the Vegas tunnel by the conclusion of October 2022, suggesting the conclusion of the downward trend. It was a favorable chance to take a bullish stance on Ethereum, considering the price was approximately 1340 USD at that moment.

In just under 24 hours of being positioned above the tunnel on the 12EMA, the price of Ethereum experienced a corresponding increase. If traders adhered to the guidelines established by Vegas and exercised patience until the yellow circle, when the cost of Ethereum dipped below the tunnel and then bounced back, specifically at 1480 USD, the resulting profit from this trade would still be approximately 10%. The potential gains from taking a bullish position on the contract are significant.

The Vegas Double Tunnel

Traders have the option to include an additional tunnel created by the 576EMA and 676EMA alongside the existing tunnel formed by the 144EMA and 169EMA. This combination, known as the "Vegas Double Tunnel," proves helpful in identifying long-term trends.

The picture displayed depicts the daily chart of Bitcoin spanning from April 2019 to August 2020. The pale blue and golden lines represent the Vegas tunnel created by the 144EMA and 169EMA (known as "Tunnel 1"), while the crimson and tangerine lines illustrate the Vegas tunnel that was formed by the 576EMA and 676EMA ("Tunnel 2").

Vegas Double Tunnel Golden Cross

Just like the MACD's golden and death crosses, the Vegas tunnel can also utilize golden or death crosses to identify trends. When the shorter duration Tunnel 1 intersects above the longer duration Tunnel 2, a golden cross happens in the Vegas tunnel.

During that period, the market experienced a rebound following a year of downward trends in 2018, and a small-scale bull market emerged in early 2019. Despite a drop in Bitcoin's value following the Vegas Tunnel Golden Cross, this event also indicated that the market would eventually transition from a bear market to a bull market.

After the Golden Cross in 2019, Bitcoin's price went down, but it's worth noting that Tunnel 1 never crossed below Tunnel 2 to create a death cross for the remainder of that period. Thus, when the price of Bitcoin dropped to the upper and lower limits of Tunnel 2 during this period, it presented a favorable chance to make a long-term investment.

Despite the unexpected impact of the COVID-19 pandemic in March 2020, Bitcoin experienced a significant decline in its price, reaching approximately 3800 USD. This led to a temporary convergence of two indicators in April. However, Bitcoin swiftly recovered and surpassed these indicators, once again demonstrating its resilience. Looking back, we see that this turned out to be a fantastic chance to make a purchase that rarely presents itself. Since then, the price of Bitcoin has consistently remained above Tunnel 1, signaling the start of a new bull market in the subsequent years (refer to the image below).

It's worth noting that as of the day when this paper was initially published in 2023, the two Vegas tunnel lines of the Bitcoin daily graph were on the verge of creating a highly favorable pattern. It has been three years since the Bitcoin daily chart experienced a golden cross, which occurred immediately after the recovery from the notable decline triggered by the pandemic. Ignoring this unexpected event, the last significant intersection of moving averages happened four years ago during a period of modest market growth. For investors with a long-term perspective, it can be advantageous to consider a strategic approach when the price retests the tunnel following the formation of a golden cross without actually breaking through.

The Death Cross of the Vegas Dual Tunnel

Likewise, when a death cross happens in the Vegas tunnel, it indicates the validation of a long-term pattern. The graph provided displays the Bitcoin daily candlestick chart during the height of the bullish market in 2021 and the subsequent bearish market in 2022.

Looking at the chart, it's clear that a significant pattern emerged in June 2022, causing a downturn in prices for the latter half of the year. This downward trend persisted until January 2023, when a positive shift occurred, and prices rose above the previous low point.

Nevertheless, at the time of the Red Circle Death cross, the value of Bitcoin had already experienced a significant decline, dropping from its highest point of $69,000 to a range of approximately $18,000 to $29,000. Nevertheless, if traders had purchased Bitcoin at roughly $8,000 during the Vegas dual Tunnel Golden Cross, which occurred post-pandemic, they could have multiplied their investment by at least two or three times.

In theory, if the price of Bitcoin drops below the initial Vegas tunnel (marked by a white circle) and the 12-day EMA also falls below the tunnel, at either $43,000 or $50,000, it would be advisable for Bitcoin holders to consider selling their Bitcoin. In this manner, even if they didn't make sales at the highest point, it would still result in a significant amount of revenue.

Another Practical Example

Please examine the marked section on the EURUSD chart. Take a look at how tightly packed the 12-period EMA, 144-period EMA, and 169-period EMA are and how the prices are in relation to one another. This suggests that a significant change is likely to occur. And, indeed, it happened. After successfully excavating the tunnel, an extensive trading system was established. A stop-loss and a sell trade were placed on the 144-period EMA due to its previous downtrend.

The following day, it managed to reach the initial Fibonacci layer above, and in the subsequent days, it consistently broke through the second level (89). 

With the completion of each tier, a segment of the transaction was finalized. Assuming you started with one lot and planned to sell off your position evenly at each level (0.25 lots per level), you would have already made a profit of approximately 127 pips, with 0.50 lots still left. This transaction will only be finalized if it reaches the fourth tier or if it reverts to the price specified in the stop and reverse order.

Trade That Was Successfully Filtered

Here is an illustration of a trade that has been effectively filtered. As evident, despite the price surpassing the tunnel, it swiftly pulled back -- failing to reach even the initial Fibonacci level (55). The reason for this is that the initial setup needed to be validated. The filter (12-period EMA) prevented this setup by being significantly distant from the price and the other two EMAs.

Is It Possible to Trust Vegas Tunnel Trading?

It's important to note that no trading system is perfect. While some promote trading without stop loss, this carries substantial risk. The creator of Vegas Tunnel Trading achieved success with this method, but acknowledges it's not infallible. However, with his extensive trading experience, he cautiously traded certain setups without stop losses. Still, most traders are advised to utilize proper stop losses to effectively manage risk. An experienced trader's success going stop loss free does not guarantee others can replicate it.

The currency pairs that the strategy would be most effective on are highly volatile, like the EUR/USD, and these may not be the most suitable pairs for novice traders to engage with. Due to this, it is advisable to avoid the Vegas Tunnel Trading method if you are a beginner.

In addition, understanding the concept of Fibonacci numbers can be challenging at times. It's always advised only to use something with a complete understanding of it.

In summary, the Vegas Tunnel Trading strategy is beneficial for experienced traders who are vigilant about staying updated and employ a range of diverse techniques to compensate for the delay of EMA indicators. These traders also possess a deep understanding of Fibonacci numbers and their impact on support and resistance levels. However, it is crucial to bear in mind that in order to retain any earnings, it is essential to handle your risk, as errors can always arise effectively.

The Pros and Cons of the Las Vegas Tunnel

The Vegas tunnel is incredibly valuable for identifying patterns. When looking at longer timeframes like the daily and four-hour charts, if the Vegas dual tunnel forms a golden cross or a death cross, it typically suggests that the trend in the upcoming extended period will be resistant to change, whether it's an upward trend (golden cross) or a downward trend (death cross). When a golden cross occurs, it can be advantageous to purchase at the current price or initiate a low-leverage long contract during a slight pullback to the tunnel. By implementing a stop loss, one can maintain positions without the requirement of constant market monitoring.

As it is a signal made up of moving averages, it also has the drawback of being delayed. On longer timeframes, when a golden or death cross takes place, it suggests that the market has been in motion for a considerable period. Consequently, the potential gains from entering at that point are lower compared to joining at the start. Thus, it serves as a valuable tool for identifying trades while also providing a higher level of safety and simplicity when it comes to setting stop losses.

Summary

For those seeking to make long-term investments or those aiming for quick profits, the Vegas Tunnel can be a valuable tool for identifying trends and identifying optimal entry points.

Nevertheless, for investors with a long-term perspective, it is expected to come across daily fluctuations, which may only occur once a year at a larger scale. As a result, investors must keep an eye on the market and practice patience consistently. In addition, prior to the emergence of a market trend or following the occurrence of a golden cross or death cross, the market might undergo frequent fluctuations prior to the emergence of a significant trend. Thus, long-term investors should enter the market gradually.

Short-term traders may also consider exploring trading opportunities using smaller time frames, such as hourly intervals. However, keep in mind that there are additional factors to consider at lower levels, so it's advisable to incorporate different patterns and indicators. Having more supporting evidence for your perspective can significantly boost your confidence in reaping profits from the trade.

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