Trade the v-formation "system"

[Mr_Average]

Hi Tymen,

Can’t speak for anyone else, but I don’t enter on the third bar. I enter once the price has moved beyond the high/low of the third bar, thereby providing some confirmation. That way, the stochs have completely rolled over too.

[tymen1]

Good to see you posting again Mr Average !

OK good for you, I trust you are doing alright with this approach.

It is, after all, a definite candlestick pattern.

[Mr_Average]

Here’s an example - hope your can see it, this is the first time I’ve posted an attachment.

It’s the first one that came to hand, and while it doesn’t show divergence on the stochs (something else I look for, as with James’ IBOB approach), it does show the triangle/inverted V on the stochs. There’s also a bounce off the 00 level and the yellow line is a support/resistance area. Entry on the bar after the third.

[tonymand]

Nice one Mr Average

[ChuckNorris]

very detailed presentation. Visuals are a nice bonus.

Fibs might be a good tp (at least partials), since a lot of entries could be retraces from a good previous run.

thanks Chuck

qsig

yes fib extentions could help set TP targets

[ChuckNorris]

Do you avoid entries that signal close to key data releases?

yes when there is data coming out i dont trade. I wait for 45 minutes after data to continue trading again. That gives me enough time for the market to digest the data

[ChuckNorris]

Here’s an example - hope your can see it, this is the first time I’ve posted an attachment.

It’s the first one that came to hand, and while it doesn’t show divergence on the stochs (something else I look for, as with James’ IBOB approach), it does show the triangle/inverted V on the stochs. There’s also a bounce off the 00 level and the yellow line is a support/resistance area. Entry on the bar after the third.

100% correct.

[ChuckNorris]

This trading method has a candlestick pattern name. It is called the “3 inside down” (for shorts) and the “3 inside up” (for longs).

You can find out more about this pattern on the following hyperlink :

Japanese Candlestick Charting Explained

It is regarded as a strong probability pattern but, like all other patterns, it has a failure rate.

Again, Bolinger bands can be put to good use here to increase the chances of the pattern following thro. A Keltner channel could also be put to good use.

Using a stochastic or other such indicator which gives results on the close seems pointless to me. If you are going to enter while the 3rd candle is in the making then the results of your indicator have not yet come thro.

I personally would never enter while the candle is still under construction. Better to wait for confirmation, which is what the above candlestick pattern requires.

If you do not wait, there is a distinct probability that the candle could change colour and go in the opposite direction.

A 10 pip stop loss for a 1 hour timeframe ??? :mad: :mad:

I hear what you say.

For me the 3rd bar is the confirmation of the reversal.

I dont like indicators since they are all lagging and of no use to me. I prefer to trade what i see as it happens

I am not sure what to make of your 10 pip stop loss remark. Cant recall saying that you need to use a 10 pips stop loss. My stop loss is placed 10 pips above the 2nd candle (that would be candle that made lower high on uptrend or candle that made higher low on downtrend)

[ChuckNorris]

yes the only problem I can see is that you are essentially retracement trading. As demonstrated this can be very profitable if you know what you are doing. You might perhaps look for a move that is a retrace so that when you get in on the turn you are in line with the dominant trend. Essentially this is using a 1 bar reversal as your entry signal. As always its good for people to have food for thought so thanks for posting. Incorporating ideas for profit taking would be useful

Would you rather trade retracements?

[tonymand]

Would you rather trade retracements?

No, which is my point. Looking to be in line with the major trend is always more profitable in my opinion although for a short term trade may not be so important. Horses for courses as always

[ChuckNorris]

No, which is my point. Looking to be in line with the major trend is always more profitable in my opinion although for a short term trade may not be so important. Horses for courses as always

I wait for market to come to my level and then i would consider entering. I dont chase after markets.

Just call me a bargain hunter. If gbp/usd is trading right now at 2.0550 I would rather go long once gbp/usd has retraced down to 2.0500 than to buy a breakout at 2.0600.

Therefor i would wait for a retracement before i buy. Then i get my bargain.

[ChuckNorris]

There are a few ways to take profits.

One way would be to wait for candle that doesnt make a new lower low

Another way would be to look at stochastics. If the stochs start turning back up you might wanna think of exiting.

You can close your trade once you have hit 100 pip profit.

You can use fibs extionsions

Or you can come up with something that suits you best.

Taking Profit is not an exact science but more of an art.

[andyk]

Hi

Good system. Can I just check - do you place your stop above the highest high (for a short trade) ie candle 1, or do you place it above the first lower high (candle 2) ?

Do you set a minimum target based on a R:R of 1:3 and then either take this or continue on with the trade until a candle formation tells you to get out?

Finally which pairs do you trade with this, and have you tried longer timeframes?

Cheers
Andy

[ChuckNorris]

@andyk

Hi

Good system. Can I just check - do you place your stop above the highest high (for a short trade) ie candle 1, or do you place it above the first lower high (candle 2) ?

When i take a long trade i will put my stop loss 10 pips under the candle that made the last lower low (candle number 1 in the v-formation). When i take a short trade i put my stop loss 10 pips above the candle that made the last higher high

Do you set a minimum target based on a R:R of 1:3 and then either take this or continue on with the trade until a candle formation tells you to get out?

I like to get 60 pips profit when i risk 20 pips. But as you know the market doesnt always give you what you ask for. If i do get the chance i like to take some profits after 20 pips then leave the rest to continue running. Then i will take some more profits after another 20 pips. And let the rest run until i get stopped out with my trailing stop loss. But you can let your trade run until you get a new v-formation

Finally which pairs do you trade with this, and have you tried longer timeframes?

I only trade gbp/usd. For my long term trades i use daily and weekly charts but for this you need lots of patience as you might only get a trade every 3rd day. Or every 3rd week.

Cheers
Andy

I hope this helps

[andyk]

Wow - you stick to cable only. This is actually very sensible imho as you get a better feel for it.

Do you get many signals off the hourly chart by sticking to just one pair?

Do you have any discretionary criteria regarding how many higher highs, higher lows need to have been made previously in the run up to the v-formation? This may be a double edged sword as if it was a strong uptrend its riskier betting against it, whereas if it was only two or three candles-worth of trend the pair may be ranging and the v-formation may not be as valid. I’d be interested in your comments.

Finally do you have an indicator to scan for the basic formation so you don’t have to screen watch. Even though you trade hourlies upwards, checking the candles every hour is a bit of a tie.

Thanks again - grateful for any comments on this

Andy

[ChuckNorris]

Wow - you stick to cable only. This is actually very sensible imho as you get a better feel for it.

Yes earlier on in my trading i tried to play lots of currencies but it is a waste of time. You only stack the odds more against you.

Do you get many signals off the hourly chart by sticking to just one pair?

It depends on how volatile day we have. Today i expect a few signals

Do you have any discretionary criteria regarding how many higher highs, higher lows need to have been made previously in the run up to the v-formation?

No i only play price action. As soon as it is presented i go for it

This may be a double edged sword as if it was a strong uptrend its riskier betting against it, whereas if it was only two or three candles-worth of trend the pair may be ranging and the v-formation may not be as valid. I’d be interested in your comments.

I agree. I choose to go with the trend. That is a lot easier. However when i decide to play against the trend i will play only half the lot i normaly does and only look for 20-40 pips. That way is safer.

Finally do you have an indicator to scan for the basic formation so you don’t have to screen watch. Even though you trade hourlies upwards, checking the candles every hour is a bit of a tie.

No indicator. I use stochastics to tell me if the market is overbought or oversold on the 1 hr timeframe. Then i know i can expect a reversal.

Thanks again - grateful for any comments on this

Andy

You might wanna experiment with the 15min charts. I have seen some very good signals on it today. However i am reluctant to trade it live. maybe you could demo it and give usa feedback. The same rules apply as to the 1hr charts

[ChuckNorris]

The 15 mins charts gave two very nice signal already today. The last signal would have been worth almost 80pips

But like i said i havent played it yet. Seem to be too much whipsaw. But i am sure someone could come up with good filters

[Cowaboi]

I agree. I choose to go with the trend. That is a lot easier. However when i decide to play against the trend i will play only half the lot i normaly does and only look for 20-40 pips. That way is safer.

What trend criteria do you use when trading off the 1 hour timeframe?..just trying to replicate your strat as accurately as possible…

[ChuckNorris]

What trend criteria do you use when trading off the 1 hour timeframe?..just trying to replicate your strat as accurately as
possible…

I like to follow the trend presented on the daily charts

[Cowaboi]

I like to follow the trend presented on the daily charts

OK, thanks. Over what period of time?..the trend is down from the past two day’s price action but up when considering a larger time period…