Examining the peculiarities of the trading strategy

Trading is like life: those who can be patient win. Being aware of the cyclic nature of the market, you don’t need to conduct trades daily.  Those who are itching to do so often lose their deposits much faster than they can imagine. Is it worth catching falling knives and making a big effort to predict a trend change or trying to backdoor your way following the crowd’s opinion when you’ve got consolidations at your command? Even if somebody thinks range trading is boring, we know that storms follow calm. So wouldn’t it be easier to arm ourselves with patience and observe the situation attentively?   The market itself will give you a chance. We only need to learn patience.  

In one of my previous articles I described the way you can easily find a currency pair that suits your trading style, be it trading retracements or updates of the previous extremums.   We are rather interested in situations when it’s not advisable to conduct trades. At such moments, the press forget about an asset, the crowd rushes to other instruments and consolidation takes place. Something of that kind happened to gold in August-October. Personally, I wasn’t surprised that Wall Street Journal, Financial Times, and some other leading global media practically forgot about it. The audience prefers “hot news” while the market of precious metals was calm. The Average Directional Index dropped below the critical level of 25, which drew double attention to gold

Consolidation in the oil market

  

We have already some experience in working with different time-frames and we know that both instruments and indicators built on their basis are more sensitive on shorter time-frames. This regularity can be used for making trades. The breakout of the upper limit of $1180-1215 per ounce range and the following sharp growth of ADX became a solid argument for going long. A protective order could be placed in the lower part of the trading range or beyond its lower limit.

Strategy of work from consolidation 

This strategy was first described by Charles Schaap and called “Two screens of Schaap: Consolidation” (also because it uses different time frames). The author suggests using a system of filters, including a minimum number of bars in the trading range. He thinks, if their number exceeds 20, the trading system will prove to be good. As for me, I’d like to draw your attention to frequent retests of broken consolidation limits which allow finding an extra point for opening a long position (like in case of gold). 

Reentrance at retest

Besides entry points and locations of protective stop-orders, any strategy must have a target and the rules of position management (should a trader increase a position, partly close it or stick to the “you bought it-you hold it” principle?). In case you apply the trading system “Two screens of Schaap: Consolidation” to the charts of gold, it’s reasonable to use target points suggested by harmonious trading. In particular, according to the Bat pattern, the precious metal can expect growth to $1255 per ounce. 

Defining a target point under the “Two screens of Schaap:  Consolidation” strategy

So, don’t run after the crowd at breakneck speed in search of hot instruments: using 2 time frames offers loads of advantages to a trader. 


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Price chart of XAUUSD in real time mode

Two screens of Schaap: Consolidation

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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