Today I will explain step by step the process I use to develop setups. This is how my strategy works. And this can be applied to any asset and using any technical tools. This is as close as I can get to using an empiric approach to define my trading opportunities. Let's start.
My trading strategy is composed of 4 steps:
1) Whats the context of the price? Here, I want to understand all the characteristics of the current situation I'm observing. Mainly I will try to define this in the Daily chart. Examples: * Are we making a new ATH? * Are we inside a 300 days correction? * Is the price above or below a Daily trendline? * Are we inside a small correction or a 50%+ decline?
2) Now that I understand my context. Can I look for similar situations in the historical data of this asset? I only work with assets with enough historical data to conduct this type of analysis. If I'm able to find at least 2 previous situations with similar characteristics to what I'm looking for, I proceed with the next step. Here I use the Weekly and logarithmic chart to identify these situations.
3) Do I see a consistent pattern that I can use to trade in those similar situations in the past? Here I will use lower timeframes like the 4HS chart, and I will look into more details in those similar situations. I will try to find something objective, like "The first retest after the breakout of the most external line of the corrections. If I see consistent behavior and a good risk to reward ratio, I will proceed with the final element of my strategy.
4)Define the pattern I'm waiting for and the execution process in advance. At this stage, I want to say, "I'm waiting for this," and this is how I will trade it. This includes: *Entry level *Stop level *Break-even level *Take profit level. *Risk.
And this is it. At this stage, my setup can be executed or canceled depending on the price behavior, but in a nutshell, this is the system I have been using for the last 3 years, and I can say that this has, on average, a win rate of 50% and an average risk to reward ratio of 2.
I hope this information was useful. Feel free to share your view in the comments or any doubt you may have. Thanks.
@TradingView, Thanks for the opportunity. Trading view has become the website/platform I use the most, and the value is huge.
ProjectSyndicate
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upvoted to support you
ThinkingAntsOk
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@ProjectSyndicate, Thanks Project! Your constant support is great. I appreciate your time for that, mate. Have a great weekend.
watchtrend
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@ThinkingAntsOk, Nice view - lets see how BTC will handle the time frame coming time
TurkInvest
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I see you are trying to find a trending-up price and waiting for a pullback pattern and then entering when this pattern is broken, I have two main comments that may improve this strategy for you. First, confirm your breakout from the continuation pattern by looking at the relative volume of the breakout candle ... if the relative volume is 1.5 or above "based on average 10 last days volume" then you have a stronger confirmation that the next UP swing has started. Secondly, "and most importantly" on your exit rules ... don't fully exit at these TP targets because you will easily miss the big moves that make the difference ... instead, you set your SL and TP and if the price reached TP take part of the profits and leave some in the trade while trailing your stop below swing lows as it goes up or trail your price using any trailing method you like ... by this method you will be riding the big moves when it comes.
ThinkingAntsOk
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@TurkInvest, Thanks for adding a valuable comment on the post. Definitely, the usage of more factors like volume can improve the understanding of any situation we are looking to trade.
kin0
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So how often does this strategy succeed or fail for you?
@kin0, 50% of the time. I realized a long time ago that I'm not in the business of predicting what the next move will be. I'm in the business of managing the statistics of systems and the Risk I'm putting on it. So as half of the time, I miss on what the market may do, I can say that my job is about making sure that bets I'm taking and the statistics of that system are aligned to the risk I'm using and make sure on the long term i have an edge and that i can make profits (in the same way casino operates).
One of the basic ways we can understand how effective or not a trading system is by asking two questions. (It doesn't matter if you trade using price action or moon cycles, or the tarot)
*What's your average win rate? (and the deviations from the average) *Whats your average Risk to reward ratio? If you have clarity on those two elements, you can define the perfect Risk for executing that system over the long term + Understand if a system is profitable or not.