We study the features of the trading system
Before deciding to conclude a deal, you need to analyze the situation on the market and receive a signal from the tools available in your arsenal. At the same time, novice traders may have problems with choosing a time interval. For example, if a person decided to work exclusively with 4-hour charts, but accidentally discovered a familiar pattern on an hour-time frame, then the temptation is to change their approaches to the chosen trading strategy. To prevent this from happening, you can use the dual-screen system. It allows you not to switch to other time intervals to find the best deal (which in many cases is not) and at the same time streamline the decision-making process.
In one of the previous materials, we studied the methods of market analysis using indicators that would allow a trader to trade in the most comfortable conditions for him. In the role of the base, the daily time frame was used. We save it as the first screen of our trading system and call it “analytical”. The main task of using the analytical screen is to understand in what market conditions we will trade. For this, the 14-day ADX indicator is best suited. Its growth from 25 in the direction of 40 and above indicates a steady trend. Region 40-50 is considered critical, when it is reached, reversals or deep corrections often occur. So on the daily chart EUR / USD, The ADX rally within the required parameters took place in January and May 2018. At the same time, “bulls” dictated their conditions on the market at the beginning of the year, and in the middle “bears” took control of the initiative.
After a trader has found a suitable currency pair for himself by examining the analytic screen, he is shifted to a lower time frame. We will call it “working,” since it is here that the search for the optimal point for entering the transaction and other attributes of the trading system will be carried out. The assistants will be an hour time frame and a 1-2-3 pattern. We are talking about a reversal model, but in a strong trend, it makes sense to use it in a completely different way than the principles are known to the crowd require. A position is opened when pointing 3 breaks in the direction of a trend identified on the analytical screen.
A protective stop order is placed at the level of the minimum oscillation in the region of point 2 and below). Various techniques are used to determine when to exit a position, including price action. In the January example with EUR / USD, the formation of the “ Three Indians ” model hinted to the trader that the smell was fried and it was time to take profits.
Similar actions take place on the working screen in the case of the bear market. First, you need to identify the 1-2-3 pattern but do not try to catch a reversal, but wait until the quotes return to the level of point 3. A breakthrough in support in this area will signal the opening of a sell deal. This is exactly what should have been done in May in the case of EUR / USD. The exit from the position is carried out on the basis of the formation of the inverse model 1-2-3, or any other price action pattern that is understandable to you.
For the first time, this technique was described by Charles Shaap, it is about trading on the restoration of a previously existing trend, so I called the trading system “Two screens of Shaap: recovery. ” In our subsequent articles, we will talk about other studies of the author that could help the trader in finding the optimal strategy.