Designing the trading system step by step

Finding and working out convergence zones in harmonious trading can be more exciting if you clearly separate the functions of analysis and direct decision making using different screens. Previously, we have already had a similar experience when, with the assistance of average directional movement and average true range indicators  we studied the market conditions and highlighted the most tradeable instruments. Or when we used the system Schaap's double screen, where price action patterns were used on the second screen. The same principle can be implemented in harmonious trading.

 

To begin with, let us recall that the fact that the quotes of a currency pair reached the convergence zone as a target of a certain pattern does not mean anything. This is just a hint that allows you to look for a signal to enter a position with increased attention. Whether it is received at the same time interval or at any other time, depends on the decision maker. Working on one screen is quite simple, but if you want to optimize the ratio of profits and losses, then it makes sense to test two time frames. So reaching the target within the Bat at 88,6% in the USD/CAD daily chart allowed the trader to switch attention to the second screen.

 

The Bat pattern in the USD/CAD daily chart

A quick glance at the hourly chart showed that the prerequisites for a reversal were created in the convergence zone: after the Three Little Indians pattern formation was completed, consolidation began to emerge, which could well be interpreted as a process of accumulating long positions by large players.

 

Three Indians in the USD/CAD hourly chart

A deeper approach to its structure made it possible to identify several familiar graphical configurations at once. First, Anti-Turtles and Shark patterns appeared on the working screen with a target of at least 113%. Second, the trading range is nothing but a “shelf” - an element of the Splash and Shelf pattern.

 

Anti-Turtles, Shark and Splash and Shelf patterns in the  USD/CAD hourly chart

In this situation, an aggressive trader would start looking for entry points in accordance with the Victor 2 Sperandeo’s 2B Bottom/Top trading system, a conservative one would wait for the upper limit of the consolidation range to break through as part of the Splash and Shelf pattern. In any case, a protective stop order should be set below the minimum price fluctuation. It looks rather wide for an hourly time interval, but narrow for a daily time interval. This is one of the features of using the system Two Graphic Pattern Screens: since the targets are placed on the analytical screen and the protective stops are on the working screen, the profit factor of the trading system increases significantly.

 

In order to increase the efficiency of the strategy, it makes sense to periodically build up previously opened positions. In the example of the USD/CAD, the workout of the Three Touches pattern helped. The target within the trading system Two Graphic Pattern Screens was set taking into account the target at 200% using the AB = CD pattern.

 

Two Graphic Pattern Screens in the daily USD/CAD chart

Thus, in order to understand and implement the described strategy in one’s own practice, one should have knowledge of harmonious trading and price action patterns. Many of them were described in the LiteForex blog. Perhaps, at first glance, the Two Graphic Pattern Screens system may seem complicated, so I will continue to talk about it to it in subsequent materials.


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Price chart of USDCAD in real time mode

Two Graphic Pattern Screens

The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteForex. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.

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