The simpler the strategy, the more effective it is.
Never try to catch falling daggers. Wait until they pierce the floor, become expensive for a while, and then you can safely take them out. The desire to buy cheaper is commendable, however, when the integrity of the deposit is at stake, you must understand what you are doing. The market is not a game of roulette, it doesn’t unfold by the magic wand of a major player. The bearish trend ends when there are no sellers, the bullish trend when there are no buyers. Understanding that a reversal occurs when previously acting forces are unable to rewrite the extreme will save not only your money but also your nerves.
As soon as a bar appears on the chart in a “bullish” trend, the maximum of which is lower than the previous one, the trader should be wary. If at the next bar the price falls below the minimum of the current – this is a signal of weak buyers. Larry Williams, author of the bestselling short-term secrets of long-term trading, as a result of many years of observation of the market, revealed the following pattern: if a large bar closes at the maximum level, it is likely that the market has formed a new peak. The same is true for the bear market: if the big bar closes at the minimum level, the chances of a new bottom are very high.
Important extremes on the GBP / USD chart
In May, a bar appeared on the daily GBP / USD chart, the closing level of which corresponded to the maximum. At first glance, the bulls dominated the market, because the difference between the closing and the minimum (Larry Williams calls it the strength of the “bulls” ) was significantly greater than between the maximum and closing (the strength of the “bears” ). Nevertheless, the author of “Short-term secrets of long-term trading” has another principle: the closer the closure to the extreme, the greater the likelihood of a reversal. If they practically coincide, there is a reason to think.
The behavior of GBP / USD in May, July and August is a kind of confirmation of the concept of a great trader. After the formation of the key bar, the bulls in the first case, and the bears in the second and third could not develop an attack. Moreover, the drop in quotations below the minimum of the next bar in May and their growth above the highs of the next bars in July and August became signals for opening positions. The stop order in all examples should be placed in the area of extrema.
The strategy of the extreme bar system on the GBP / USD chart
Yes, long in July did not bring profit, but in two other cases, a trader could make good money. The closure of the closing price to the maximum and minimum is really a very strong signal about the imminent formation of a peak or bottom. However, you need to give the falling daggers a little time to make fun. One should enter a position only if the current extremum is not rewritten or rewritten with signs of depletion of the previously prevailing trend. I will give a few more examples.
In December, a bar with a close near the maximum was formed on the weekly USD / CAD chart. At the next bar, the extremum was rewritten, but the bulls could not move further north. This indicates their weakness and allows you to form a short position on the breakthrough of the minimum following the key bar.
And in July, history repeated itself in the “bear” market, which allowed the trader to enter the long. A bar that needs attention and closes near the minimum, sellers’ attempts to update it that were unsuccessful and quotes return to the maximum following the key bar. In this example, there were simply no new sellers in the market, in the previous one, buyers, which predetermined its turn.