So I have a strategy which I put together in literally about 10 minutes after a conversation with someone about a trade entry he took.
I use the daily candles only. I am not interested in any time frame lower than that - just my personal preference. Also, all my trades are pending buy or sell stop orders. I never enter a market entry, I wait for price to come to me (or more importantly, if there is momentum - I want it to continue in my direction before I get in).
For a LONG trade:
The only signal I am looking for is that today’s daily candle has made a higher high AND a higher low against yesterday’s candle. Pic below:
For a SHORT trade:
The only signal I am looking for is that today’s daily candle has made a lower high AND a lower low against yesterday’s candle. Pic below:
NO TRADE CLAUSES: If today’s candle has made a lower high and a higher low (inside bar), I consider that a neutral candle and I wait for the next day to see if a signal candle occurs. There is no trade here. If today’s candle has made a higher high and a lower low (outside bar), I consider that a neutral candle and I wait for the next day to see if a signal candle occurs. There is no trade here. In my mind, these “neutral” candles mean the momentum is lost and I don’t want to be in a market that has no momentum. Pictures below:
Stop Loss is 1.5x ATR at the time of the signal candle close (or just before it). This comes to break even when the first TP is hit (keep an eye on your swap though, make sure the SL is moved to account for that).
Take Profit is in 2 parts. Part 1 is 1x ATR at the time of the signal candle. Part 2 stays open until you get a signal to exit the trade. The exit signal is one of the “Neutral” candles. When you get a neutral candle you close the trade irrespective if you are in profit or loss. By doing this I am keeping the losers small and letting the winners run (hopefully).
The entry price is 5 pips above the high of the signal candle for a long, and 5 pips below the low of the signal candle for a short.
I enter 2 trades, only because I don’t use an EA for closing trades. So one trade has a TP and the other doesn’t (both have a SL though. I move the SL to break even after the trade with the TP hits TP).
So for me, I can only check the candles a few hours before the close of New York because of work commitments. So as an example, at that time today’s candle has a higher high and a higher low to yesterday’s candle. I set a pending buy stop order for 5 pips above the high of today’s candle with SL and TP set as I explained above. I set the order to expire at the close of New York the NEXT day if it is not triggered. If it is not triggered it means momentum is gone and we don’t want to be in the market. Then I close my charts and don’t come back until the next morning (I usually do check later that night to see how it is going, but I don’t do anything with it until the next morning).
I check this trade every morning until I get a neutral candle. At which time I close the trade whether I’m in profit or not. If the next candle continues the pattern of HH+HL or LH+LL, I let it run another day.
Think you might need to review your first post for clarity.
However, this is an idea I’ve mulled over but never got to trading. I take it what you mean is -
HH + HL = Buy
HH + LL = Neutral (an “outside bar”)
LH + LL = Sell
LH + HL = Neutral (an “inside” bar)
The problems with this as I see it are the virtually 50% correct direction rate plus the exits with profit. But maybe you have found a way round this - I also believe entry is not where you make the money, its the exit.
Yes you are exactly right mate. Outside and inside bars are neutral to me so I don’t want to trade them.
Not sure what you mean by 50% correct direction rate. So far I have found that the pending orders have kept me out of losing trades. The order is deleted at the end of the day if it has not been triggered.
It was a very quick process for me to make this strategy and I am still in the early stages of forward testing so anything can happen. I did back test a fair bit and it looked good.
Actually, outside days might be worth a further look when you can get round to it. Breach of an OD’s H or L can frequently be a powerful signal with or against prior trend. This is sometimes especially so if you get an “outside key reversal”, where price on the OD finishes very high for example but then the OD’s L is breached within a few bars. Might be worth testing, say, using bracket trading with both buy and sell orders based on the OD range.
Theres someone who is using a variation of this trading strategy @Shaungliddon. Not sure how it’s gone, he forward tested and dont know if hes still using it.
Have you back tested your rules? Is it profitable?
I have backtested something similar and it did seem to work but needed feeling more. Mine is more with the moving average say 20 and 50 if price closes below or above these place an order etc have you back tested this?
