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.
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.