Of any interview in the Market Wizards series, the one with Martin Schwartz was perhaps the most criticized due to the lack of transparency into how he trades. Subsequently, he did an interview in which he stated:
“The 10 day exponential moving average (EMA) is my favorite indicator to determine the major trend. I call this “red light, green light” because it is imperative in trading to remain on the correct side of a moving average to give yourself the best probability of success. When you are trading above the 10 day, you have the green light, the market is in positive mode and you should be thinking buy. Conversely, trading below the average is a red light. The market is in a negative mode and you should be thinking sell.”
1) He is only in a long position if price is above the 10 ema.
2) The setup/strategy must be simple, which may be why he does not reveal it in his Market Wizards interview. He may not want the crowd to be using it. This is the key.
Using pure PA (price action) with no indicators, there are only three entry types: momentum/breakout, pullback, and reversal. If he uses an indicator, it may well be an overbought/oversold oscillator. As a guess, he is using pullbacks above the 10.