The base success rate of this strategy was over 60% for me and by applying some filters and considering some best practices and being experienced in it, I could increase its success rate up to 76%.
This strategy is a combination of a pattern, , and key levels. By key level, I mean a or a horizontal resistance/support line drawn by you or your added indicator. We can assume the base requirement of the strategy meet if a Bullish (BE) pattern takes place near a key level or a .
We will use the Trend Key Point indicator to draw horizontal key levels and key points. It marks with a sign above and below the candles. If the is important, the indicator will draw a horizontal line as a key level. In this strategy the LL are important to us. All necessary details will be applied to your chart by adding the indicator to it. You can also read more about Trend Key Point guide and best practices here.
There is also an indicator for finding and highlighting patterns called Common Patterns. By adding the indicator, you will see too many highlighted patterns because there are active by default. Therefore, after adding the indicator to your chart, you need to open its options and uncheck all except the Show Engulfing one to highlight just patterns.
After adding indicators, you need to wait and capture entry points in a suitable state. But there are some tips and best practices we need to jot down to distinguish between good and bad states and increase the success rate of the strategy. I list below:
- Ignore a BE pattern that does not occur at a key level or is far from key levels.
- It’s a good sign if the BE pattern occurs on an LL (a candle that has a star under it) which meets a key level.
- BE pattern must have an acceptable and strong body. You can ignore weak candles.
- Ignore the BE pattern formed just below a resistance or potential reversal area.
- It excites me to see a BE pattern at the lower point of the price but a BE at the end of correction sounds good too.
- If the BE pattern occurs on the LL seeing a key level and the also confirms that by crossing the VMA20 ( moving average length 20), you can enter definitively.
- If the entry requirements are met, the closing price of the BE pattern will be my entry point.
- Do not enter if the green candle of the BE pattern is abnormally big. You can wait for a pullback or you can ignore the pattern.
- BE pattern in the bottom of a range box could also be a good chance to enter but you have to be careful where the range is.
As you read before, this article is about finding the entry point and after clarifying that it’s time to find out where you need to put your stop loss and your take profit but, these topics not fit in this article. You can refer to the other available resources covering these topics.
Both of the indicators mentioned are developed by myself, so I tried to apply my best practices to them. I hope it was useful for you. Feel free to submit your comment to improve the strategy or the indicators.
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