Trading strategy is not just a set of rules, but your vision of the market, which should be logically justified. In this article, we will look at how to trade breakouts of local minima and highs on CFD contracts. Earlier we considered Medium-term CFD trading strategy.
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If you are still not very good at CFD trading, I recommend my training articles:
Features of the CFD trading system
Financial instrument: any CFD contract with the maximum level of volatility (CFD is best suited for commodity futures BRN, WTI, NG).
Timeframe: not lower than M15, the best option is H1.
Duration of the position held: about 24 hours.
Trading session: any, except Asian, ideally - London, or New York.
Requirements for the schedule: only Japanese candles, or bars, as well as drawing tools (horizontal lines).
Indicators: volumes, auxiliary tool - moving average with period 200.
False breakdown is one of the variations of trade from levels. Its main purpose is to drive most speculators into a deal and collect stop-orders. As a level, we always take a local extremum (maximum or minimum) approximately for the last 100 candles or bars. The market is an irrational environment, therefore it is necessary to choose the nearest extremums on eyes on the basis of experience and supervision over schedules. The overall picture of the analysis on the chart is as follows (more detail each detail will be considered in the rules of entry and exit from the transaction).
Green and red horizontal lines indicate extremum levels, and circles are surrounded by false breakdowns of these levels.
Rules for entering and exiting a position
Entry into the transaction is carried out by a market order upon confirmation of a false breakdown. An additional signal of reliability is the volume. As a rule, after entering the transaction, they should start to grow, if this does not happen, that is, an excuse to close the position with a minimum loss.
The second additional signal (but not necessarily) is the direction of the moving average with the period 200 (moving average). If you want to work exclusively on a trend, then watch for where the dynamics of average prices are directed. Trend transactions give more chances for success.
For beginning traders, the conditions for leaving the position are reduced to one simple rule - either stop-loss or take-profit. Otherwise, experienced players can monitor the volume and behavior of the price (in order to reduce losses).
Stop-loss is placed lower by several points from a false breakdown. Take-profit is set not above the local extremum in the direction of motion.
Note: closely monitor the ratio of stop-loss to take-profit, it must be at least 1 to 2, and preferably 1 to 3. This determines the general level of drawdown on the trader's account at an acceptable risk.
For this strategy, the general rule is the same as for all other reasonable ideas - do not risk the transaction more than 2% of the capital. Especially aggressive traders can afford to work with 5%, but in this case the chance of losing a deposit increases significantly.
Enter the transaction preferably all volume at once (2%), or divide the position into several parts in order to reduce losses. To actively manage the position, you can switch to a smaller timeframe and add after each new candle in your favor.