QuickfingerLuc. Trading system. Applying theory to practice.
Quickfinger Luc. Trading strategy. Step-by-step application
This is going to be the final post in the educational block, devoted to Quickfingers Luc. trading system.
Today, I’d like to explain step-by-step how the strategy works in practice, including Luc’s recommendations and my own experience in working with this trading system.
To revise the information, I suggest you read the previous article here once again.
Let’s take the most popular cryptocurrency pair BTCUSD as an example. Though Luc recommends trading the pairs that include Ethereum, as they are more volatile, I’m sure, most of you will start testing the system on exactly this pair.
I’d liketo clarify here that QFL trading system itself allows quite much freedom for experiments, so, it is not guaranteed that if you follow my example, you’ll achieve the same results and draw the same conclusions.
This article is rather an example of the strategy’s basic principles.
So, let’s start.
Step 1. Chose the instrument you are going to trade. Find out its fundamental components, study the project itself.
This step is to make sure that the project is promising in the long term, and encourage yourself to buy in the falling market, as it will generate profits in future.
In our case, I think nobody is going to have questions, as there is hardly anybody, familiar with the cryptocurrency market, who thinks bitcoin to become a scam in future.
Step 2. Identify patterns and fractal models; find out the base levels, rebounds and cracks.
Luc suggests starting from the two-month timeframe.
To do it, we’ll take the candlestick chart alone, clear from any indicators.
There, I’ll mark the key levels of the last bullish candle that hasn’t closed yet by a bearish one. First of all, the most important values are open level and low.
They will be the current and the future base levels.
In the monthly timeframe, there is another prominent level, indicated by February candlestick, which is also the strong support for bulls.
I will also mark the level with the orange line, but a thinner one.
In the weekly timeframe, it is clear that, in addition to the levels marked, there is another candle that hasn’t been closed, at about last November (marked with the red circle). I marked this level with the purple line.
Next, you move on to the daily chart.
There you already can analyze all key elements of QFL strategy in the retrospective and assess the market’s general trend.
I marked the base level with the blue lines; they are the price levels that are the strong support and resistance levels. As a rule, the ticker, having reached the level, rebounds rather far.
The base is marked at the level that has been reached by at least two near candlesticks.
Having marked these levels, you can identify the cracks and rebounds.
The crack is the strong price move, after the bases breakout; I marked it with the red zone.
The rebound is the price rise after the next base has been reached; I marked it with the green zone.
Now, you will easily calculate the average depth and the duration in time of the crack and the rebound.
So, I have the following data:
- Average duration of the crack is 3.8 days.
- Average depth of the crack is 1527 USD.
- Average duration of the rebound is 6.6 days.
- Average height of the rebound is 2987 USD.
This information helps us suggest future elements of QFL pattern
However, if you pay attention to the changes, you’ll see that the rebounds are getting lower and longer in time.
Cracks are also getting smaller.
To find out the dynamics, calculate the average value for the last three cracks and reabounds
Finally, I have the following data:
- Average crack depth is 887 USD.
- Average rebound height is 885 USD.
You will need these data to identify the levels to enter and exit a trade.
Finally, we need to find out the frequency of QFL pattern (crack-base-rebound)
To do it, you need to note that there is no interval between some models; or there is, but you can’t see it in the daily chart. You need to take into account these cases as well, to calculate the average values. To include their values, I took 0.1 per day.
Finally, I got the average interval of 4.3 days.
This number will help to identify the start of a new model in future.
Step 3. Identify entry level and set alerts at these values.
To do it, you need to study shorter timeframes.
To identify the entry points, let’s study hourly timeframe.
Let’s analyze the last QFL pattern. First, you need to find out about buyers in the market.
The main sign that there are no buyers in the market, or they very weak, is the size and the response of the rebound. In our case, you see that the rebound didn’t reach the base level; it means the buyers very weak at these levels.
The second signal is the rebound slope. You see it is very long and flat.
The same is with the previous base that has a very flat rebound with small volumes.
All of this suggests that there are no buyers in the market, and so, there are no reasons to open purchases when the current base is broken out.
Now, let’s study the current situation.
You see, the ticker has broken out the base and opened a new crack. But the rebound was too short and hasn’t reached the previous blue line; it cancels this base as the level to buy and makes us wait for the next crack.
Not to make the educational course too long, waiting for suitable environment, let’s imagine the next ticker moves.
Suppose, the current base is broken out and the ticker reaches the next base level at 5810 USD.
Assume that the ticker sharply rebounded from this level and touched or even went over the border of the previous base level, as in the chart above.
In this case, we understand that this zone is supported by strong buyers, and so, many investors opened their longs beyond the zone.
Therefore, we understand that if the level is broken through, there will be strong impulse sale, due to closing by stop orders and general panic.
That is the dump, we are looking for!
To identify the future base level, we focus on the key levels that we marked in the monthly timeframe.
In our case, the nearest level is at 5400. That is where I would put the first buy order.
The next level to enter depends on the average crack depth for the last three times. As we have already calculated, it is 887 USD.
That is, in our case, it is at about 4900 USD.
The last level, you can open a position, is the total average value; we figured it out to be 1527 USD.
So the entry level will be at about 4300 USD in our case.
There is another way to identify the entry points, that doesn’t at all depend on technical analysis.
In this way, Luc suggests dividing all buy trades into four parts:
- First purchase – 10% from the base level
- Second purchase – 20% from the base level
- Third purchase – 35% from the base level
- Fourth purchase– 55% from the base level
In our case, we have:
- First purchase – 5200 USD
- Second purchase –4600 USD
- Third purchase – 3700 USD
- Fourth purchase– 2600 USD
It is up to you, which way you are going to apply, or you may invent your own one. In this respect, the strategy developer is quite flexible and doesn’t try to impose his way of trading. The only compulsory requirement is that you must open at least 3 positions, and the purchase volume must be increasing (the smallest lot-size is for the first trade, and the biggest one is for the last position).
Step 4. Identify the total size of positions.
In this respect, the author recommends allocating at least 10% for all positions in total. If the drop is very deep, with strong sentiment, it can be as much as 30%
Anyway, you should save some money for further averaging. This principle looks like a kind of Martingale. Luc doesn’t suggest limiting losses, but you mustn’t spend all your deposit either.
Luc recommends calculating in advance the maximum size of a position, you can allocate for averaging.
To live through drawdowns easier, you just need this first try, then you will thoroughly study the project and make sure that it is safe.
Step 5. Identify the levels to take profit.
The author often says in his notes that nay profit is good!
To understand where the level of profit is, you should always monitor your point of breakeven.
You need the formula of volume-weighted average price.
It looks like this:
Weighted average price =
As an example, imagine, you are going to invest 1000 USD, based on QFL system.
You divide this amount like this:
- First purchase – 5200 USD – 12% or 120 USD
- Second purchase – 4600 USD – 24% or 240 USD
- Third purchase – 3700 USD – 36% or 360 USD
- Fourth purchase – 2600 USD – 38% or 380 USD
In this case, the breakeven point for the first and the second trade will be at 4800 USD.
(120*5200 + 240*4600)/(120+240)
If the third buy order works out, breakeven will be at 4250 USD.
(120*5200 + 240*4600 + 360*3700)/(120+240+360)
If the fourth order works out, breakeven will be at 3680 USD
(120 *5200 + 240*4600 + 360*3700+380*2600)/(120+240+360+380)
If all four orders work out, you should be happy, as the price is rather likely to move beyond the breakeven level of 3800 USD during the correction in the bearish trend, and so, you won’t lose anything.
Besides, you have high mathematical expectation that the price will return to the entry level, as the position was opened below the strong key level, that was far from the high.
If so, you will already return 41% from the total size of the position.
As you see, the key levels for profit-taking will be the level of the first opened order and the broken out base level.
In this system, the author suggests you shouldn’t use strict limits to take the profit, you should let the price increase.
To relieve emotional tension, he recommends putting a stop at breakeven when you gain. If it didn’t help, take 30% of you position. Next, each time you feel the fear of missed profit, take another 30% of the rest of your position.
As you see, this system is quite original and unique. It is based on mathematics and self-control, rather than on fundamental and technical analysis. Nevertheless, following the rules of the strategy, you can well gain quite a lot.
The only significant drawback of this system is that the signals to enter a trade are rather rare. So, the author himself suggests you select a few dozen trading instruments that will be traded against different cryptocurrencies. In this case, the entry signals will be more often.
I wish you good luck and good profits!
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.