EURAUD Strategy
Updated
Strategy-
Indicatators used:
- TV Double Top (DT)
- TV Double Bottom (DB)
- TV Average True Range (ATR)
- TV Volume Weighted Average Price (VWAP)
Conditions:
5 minute time frame
Wait for DT or DB pattern to form
VWAP must be at 1 of 3 locations. At the support or resistance pattern itself, through or above the neckline for DB, through or below the neckline for DT or at the target set by the DT or DB indicator. See fig 1, 2 and 3
Fig 1
Fig 2a
Fig 2b (With framework)
Fig 2c (Without framework)
This trade went on to win, but that isn't the point. This is just to show the location of VWAP and the tolerance we limit the rules to and that rule will be utilised throughout backtesting. This is only relevant at the time the pattern is formed. As in if 5 candles later, the VWAP is in the wrong place, I dont factor that in to the tests and the statistics coming out of this strategy
Fig 3
This is within the scope of the strategy. VWAP though below the target is only 2.2 pips below. which is negligible. Discretion required perhaps.
We just have to be aware that price could react from VWAP. and retrace a few pips prior to our TP
I have found that VWAP is a magnet. And as such either repels, or attracts price.
This is why I find it just adds some confirmation to the DT and DB patterns.
If price forms a DT/DB on VWAP, it is likely VWAP is turning to support and will repel price.
If price forms a DT/DB and the target set by the indicator is at VWAP, then it is likely to attract the price.
This is the main reason i want to see VWAP going through, or above the neckline of a DB, or going through or below the neckline of a DT. Reason being is that in these patterns, both the tops/ bottoms, and the neckline can act as support or resistance for the next push in price, be it in the right or wrong direction from our perspective. The issue is VWAP can also act as dynamic support or resistance and as such coming into potentially 2 support or resistance zones, just seems to add confluence that it wont work out in that trade.
How to set up the framework:
As said prior, i simply use the wicks of the patterns, at both the tops, the bottoms, and the neckline to frame out the pattern and to see how price is reacting in these levels. Plus, it does make it a bit more visually aesthetic. See fig 4a and 4b
Fig 4a
Fig 4b
How to enter:
Once the pattern has formed, we frame out the trade. As we are on the 5m chart we have plenty of time to do this.
On a double top, we create the Resistance level using the above technique.
This is now the termination zone. It MUST have been tested on the second top. There are times the indicator shows the pattern, but creates a lower second top. For standardisation, it makes sense to have the second top tested.
A wick can go above the zone
Price CAN NOT close above the termination zone as this would indicate a trend continuation which can be done just by using the Resistance level, and expecting it to turn into support. (Not within scope of this publishing)
Wait for either a colour change candle, or for a bearish pinbar candlestick pattern to close.
We can then enter short on the close of that candle
Our stops go at the high of the pattern, + 1ATR, and the targets are set where the indicator dictates. See figure 5
Fig 5a (Example of a good set up)
Fig 5b(i) (Example of a bad set up)
Fig 5b(ii)
Indicatators used:
- TV Double Top (DT)
- TV Double Bottom (DB)
- TV Average True Range (ATR)
- TV Volume Weighted Average Price (VWAP)
Conditions:
5 minute time frame
Wait for DT or DB pattern to form
VWAP must be at 1 of 3 locations. At the support or resistance pattern itself, through or above the neckline for DB, through or below the neckline for DT or at the target set by the DT or DB indicator. See fig 1, 2 and 3
Fig 1
Fig 2a
Fig 2b (With framework)
Fig 2c (Without framework)
This trade went on to win, but that isn't the point. This is just to show the location of VWAP and the tolerance we limit the rules to and that rule will be utilised throughout backtesting. This is only relevant at the time the pattern is formed. As in if 5 candles later, the VWAP is in the wrong place, I dont factor that in to the tests and the statistics coming out of this strategy
Fig 3
This is within the scope of the strategy. VWAP though below the target is only 2.2 pips below. which is negligible. Discretion required perhaps.
We just have to be aware that price could react from VWAP. and retrace a few pips prior to our TP
I have found that VWAP is a magnet. And as such either repels, or attracts price.
This is why I find it just adds some confirmation to the DT and DB patterns.
If price forms a DT/DB on VWAP, it is likely VWAP is turning to support and will repel price.
If price forms a DT/DB and the target set by the indicator is at VWAP, then it is likely to attract the price.
This is the main reason i want to see VWAP going through, or above the neckline of a DB, or going through or below the neckline of a DT. Reason being is that in these patterns, both the tops/ bottoms, and the neckline can act as support or resistance for the next push in price, be it in the right or wrong direction from our perspective. The issue is VWAP can also act as dynamic support or resistance and as such coming into potentially 2 support or resistance zones, just seems to add confluence that it wont work out in that trade.
How to set up the framework:
As said prior, i simply use the wicks of the patterns, at both the tops, the bottoms, and the neckline to frame out the pattern and to see how price is reacting in these levels. Plus, it does make it a bit more visually aesthetic. See fig 4a and 4b
Fig 4a
Fig 4b
How to enter:
Once the pattern has formed, we frame out the trade. As we are on the 5m chart we have plenty of time to do this.
On a double top, we create the Resistance level using the above technique.
This is now the termination zone. It MUST have been tested on the second top. There are times the indicator shows the pattern, but creates a lower second top. For standardisation, it makes sense to have the second top tested.
A wick can go above the zone
Price CAN NOT close above the termination zone as this would indicate a trend continuation which can be done just by using the Resistance level, and expecting it to turn into support. (Not within scope of this publishing)
Wait for either a colour change candle, or for a bearish pinbar candlestick pattern to close.
We can then enter short on the close of that candle
Our stops go at the high of the pattern, + 1ATR, and the targets are set where the indicator dictates. See figure 5
Fig 5a (Example of a good set up)
Fig 5b(i) (Example of a bad set up)
Fig 5b(ii)
Trade active
Backtesting results for DEC 2023
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