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How Can You Use the STRAT Method in Trading?How Can You Use the STRAT Method in Trading? The STRAT method is a unique trading approach that is supposed to simplify market analysis by breaking price action into clear, actionable scenarios. Developed by Rob Smith, it focuses on candlestick patterns, scenarios, and timeframe alignment to help traders better understand market structure. This article explores the key components of the STRAT method, its practical application, and how it can potentially refine trading strategies. What Is the STRAT Trading Method? The STRAT method is a trading strategy created by Rob Smith. It’s designed to simplify technical analysis by focusing on price action and breaking down market movements into clear, actionable steps. At its core, the STRAT strategy categorises price behaviour into three scenarios—inside bars (1), directional bars (2), and outside bars (3)—helping traders identify potential opportunities and understand the market structure. One of the STRAT’s standout features is its emphasis on timeframe continuity, where traders examine how price movements align across different timeframes, such as daily, weekly, and monthly charts. This alignment helps traders gauge the broader market direction, potentially improving their analysis. The STRAT trading method also uses specific candlestick patterns to signal potential reversals or continuations. For example, an inside bar (Scenario 1) indicates price consolidation, often preceding a breakout. A directional bar (Scenario 2) suggests trending movement, while an outside bar (Scenario 3) reflects heightened volatility by capturing both higher and lower price ranges. Unlike some trading approaches that rely heavily on indicators, the STRAT focuses on raw price action, giving traders a clearer, no-nonsense view of market dynamics. It’s an accessible and structured way to analyse charts and make decisions based on what the market is doing right now. Key Components of the STRAT Trading Strategy The STRAT trading strategy stands out because of its straightforward approach to breaking down price action. As mentioned above, inside bars, directional bars, and outside bars are central scenarios. These scenarios categorise how the price behaves within a given timeframe, providing a framework for traders to interpret the market. Let’s delve into each component in detail. Scenario 1: Inside Bar An inside bar forms when the current candlestick's high and low remain within the range of the previous candlestick. In other words, the market is consolidating, showing no breakout beyond the prior candle’s extremes. Traders often interpret this as a pause or a moment of indecision in the market. What makes inside bars significant is their potential to precede larger price movements. For example, after a series of inside bars, a breakout often occurs when the price breaks above or below the consolidation range. While this pattern alone doesn’t confirm direction, it signals the market is storing energy for a potential move. Scenario 2: Directional Bar A directional bar, also called a “2” in STRAT terminology, occurs when the price breaks either the high or low of the previous candle but not both. This creates a clear directional move—either upward (2 up) or downward (2 down). These bars are essential because they indicate that the market has picked a direction. A “2 up” shows bullish momentum, while a “2 down” signals bearish activity. These movements are especially useful when aligned with other factors, such as larger trends or support and resistance levels. Scenario 3: Outside Bar The outside bar is the most volatile of the three. It forms when the current candlestick's high exceeds the previous candle’s high, and its low breaks below the previous low. Essentially, the price covers both sides of the prior range, capturing significant market activity. Outside bars often suggest a battle between buyers and sellers, leading to volatility. These bars can provide insights into reversals or continuing trends, depending on their context within the broader market structure. Expanding and Contracting Markets The STRAT method also places significant emphasis on understanding the expanding and contracting market phases, which offer critical insights into market dynamics. These phases reflect shifts in volatility and price behaviour, helping traders interpret broader market conditions. Expanding markets occur when price action creates both higher highs and lower lows compared to previous bars or ranges. This phase often signals heightened volatility as buyers and sellers battle for control, creating larger swings. Scenario 3 (outside bars) typically appears during this phase, capturing the market’s attempt to push in both directions. Expanding markets can provide potential opportunities for traders who are prepared to navigate rapid price movements. Contracting markets, on the other hand, are characterised by shrinking ranges, with lower highs and higher lows. This consolidation phase often results in inside bars (Scenario 1) and suggests indecision or reduced momentum. Traders frequently watch for potential breakouts as the market transitions out of contraction. Combining Scenarios and Context Ultimately, there are many combinations of these bars under the STRAT method, each with names like the 3-2-2 Bearish Reversal, 2-2 Bearish Continuation, 1-2-2 Bullish Reversal, and so on. For traders new to this system, it might be easier to start with a handful of patterns and practice them before adding others to their arsenal. Some of the basic starting patterns include: 2-1-2 Reversal 3-1-2 Reversal 2-1-2 Continuation 2-2 Continuation However, each of these scenarios becomes even more meaningful when paired with other market data, such as higher timeframes or candlestick structures. For instance, patterns like hammers or shooting starts often emerge within these scenarios, offering specific signals to traders. Timeframe Continuity: A Core Pillar Timeframe continuity is a fundamental aspect when interpreting the STRAT candle patterns, offering traders a way to align their analysis across multiple timeframes. It’s about ensuring that the price action on smaller timeframes complements what’s happening on larger ones. When all timeframes “agree,” it can provide a clearer picture of market direction and potentially improve the decision-making process. In practice, traders using the STRAT in stocks, forex, commodities, and other assets often look at three primary timeframes: the daily, weekly, and monthly charts. Each represents a piece of the puzzle. For example, if a trader sees a bullish “Scenario 2” (directional bar) on the daily chart, but the weekly chart shows a bearish pattern, this misalignment might signal caution. However, when the daily, weekly, and monthly timeframes all show bullish directional movement, it creates a stronger case for a trend continuation. Timeframe continuity also helps traders filter out noise. Shorter timeframes, like the 15-minute or hourly charts, can produce conflicting signals, leading to overtrading or confusion. By focusing on the larger timeframes first, traders can ground their analysis in broader market trends and avoid reacting impulsively to minor fluctuations. Practical Application of the STRAT Method Applying the STRAT method involves a systematic approach to analysing charts and identifying potential opportunities. While every trader may adapt the method to their own style, the process generally follows a logical flow. Here’s how it can be broken down: Step 1: Understanding the Current Scenario Traders typically start by identifying the active scenario (1, 2, or 3) on their chosen timeframe. This initial classification helps to set the context. For instance, in the EUR/USD daily chart above, we initially see an outside bar (Scenario 3), followed by two inside bars (Scenario 1)—a 3-1-1 Bullish Reversal pattern; this transitions into a 1-2 Bullish Reversal before a 2-2 Bullish Continuation. In other words, the market is seen as entering a bullish phase. Step 2: Aligning Multiple Timeframes The next step involves assessing how the current scenario fits within the larger market structure by checking higher timeframes. In the EUR/USD example, the monthly chart shows three consecutive bullish directional bars (Scenario 2), also known as a 2-2 Bullish Continuation. This is supported by the weekly chart. Initially, there are two bearish directional bars before a bullish outside bar (Scenario 3) and a bullish directional bar. This indicates an alignment of bullish momentum, indicating a higher probability for the daily chart setup. Step 3: Identifying Supporting Patterns and Signals Within the scenario, specific candlestick patterns, like hammers or shooting stars, alongside key support and resistance levels, often provide additional context. These signals are believed to be more effective when they align with the broader market direction and timeframe continuity. In the EUR/USD example, the weekly chart shows a candle resembling a hammer (the outside bar), while the daily chart shows a pattern resembling a Three Stars in the South formation (the 3, 1, 1 candles). While rare, the three stars in the south pattern can signal sellers are losing momentum, when: The first candle features a long body and long lower wick. The second candle has a shorter body and closes above the first candle’s low. The third candle has another short body with minimal wicks and a range inside the second candle. While both formations don’t meet the technical criteria for their respective patterns, a trader might consider them to add weight to the bullish idea. The weekly chart also shows the price breaking past a previous resistance level, which adds confluence. Step 4: Entering and Exiting A trader would typically enter as the candle on their chosen timeframe closes. A stop loss could be set beyond the entry candle or a nearby swing high/low. Some traders prefer to close the position depending on the next candle close and corresponding scenario, while others might target a particular support/resistance level or use multi-timeframe analysis to find a suitable exit point. Advantages and Challenges of the STRAT Method The STRAT method offers a unique, structured approach to trading, but like any strategy, it comes with both advantages and challenges. Understanding these can help traders decide how to integrate it into their approach. Advantages - Clarity in Analysis: By categorising price action into simple scenarios, the STRAT’s patterns simplify market behaviour, reducing ambiguity. - Focus on Price Action: The method relies on raw price data rather than indicators, offering a direct view of market dynamics. - Adaptability Across Markets: Whether trading equities, forex, or commodities, the STRAT applies universally to any market with candlestick data. - Improved Consistency: Its rules-based framework helps traders avoid impulsive decisions and stay aligned with their analysis. Challenges - Learning Curve: Understanding the nuances of scenarios and timeframe continuity requires time and practice. - Patience Required: Waiting for alignment across multiple timeframes may lead to fewer trade opportunities, which may frustrate active traders. - Context Dependency: While structured, the STRAT still requires interpretation, and outcomes depend on how well traders incorporate broader market factors. The Bottom Line The STRAT method offers traders a structured way to analyse price action, combining scenarios, candlestick patterns, and timeframe continuity to navigate markets with confidence. While it requires discipline to master, its clear framework can potentially improve decision-making. FAQ What Is the STRAT Strategy by Rob Smith? Rob Smith developed the STRAT strategy, a trading method that simplifies technical analysis by categorising price action into three STRAT candle scenarios: inside bars, directional bars, and outside bars. It focuses on understanding market structure, using timeframe continuity and actionable signals to interpret trends and reversals. What Is the STRAT Method of Trading? The STRAT method is a rules-based approach to trading that prioritises price action over indicators. It uses specific candlestick patterns and scenarios to identify potential trading opportunities and aligns multiple timeframes to provide a cohesive market view. What Is a Rev Strat? According to Rob Smith, a “rev strat” refers to particular setups. First is a 1-2-2, initially with an inside bar, then a directional bar in one direction, and finally a directional bar in the opposite direction, marking a possible reversal. The second is a 1-3 setup, with an inside bar followed by an outside bar. This signals an expanding market in the STRAT, meaning a period of heightened volatility, and is considered bullish or bearish based on the outside bar’s direction. This article represents the opinion of the Companies operating under the FXOpen brand only. It is not to be construed as an offer, solicitation, or recommendation with respect to products and services provided by the Companies operating under the FXOpen brand, nor is it to be considered financial advice.
Education
by FXOpen
3
EURJPY: Top formation, sell opportunity.EURJPY is neutral on its 1D technical outlook (RSI = 53.515, MACD = 0.340, ADX = 26.005) as it ranges between its 1D MA50 and 1D MA200. This is a peak formation on the LH trendline of the 5 month Channel Down identical to January. At least a -6.20% bearish wave is to be expected. Today's spike gives an even better sell entry for a TP = 154.00. ## If you like our free content follow our profile to get more daily ideas. ## ## Comments and likes are greatly appreciated. ##
Short
by InvestingScope
GBPUSD: Potential Pullback Trade Explained 🇬🇧🇺🇸 GBPUSD closed this week, respecting a key daily horizontal support cluster. Analyzing the intraday price action, I spotted a nice double bottom pattern on an hourly time frame. To buy the pair with a confirmation after the market opening, I suggest waiting for a bullish breakout of its neckline. An hourly candle close above will confirm a violation. A bullish move will be expected at least to 1.296 level then. ❤️Please, support my work with like, thank you!❤️ I am part of Trade Nation's Influencer program and receive a monthly fee for using their TradingView charts in my analysis.
Long
by VasilyTrader
3
USDCAD: 4 year Top is in. Brutal selloff started.USDCAD just turned bearish on its 1D technical outlook (RSI = 44.245, MACD = -0.003, ADX = 17.555) and is on the 3rd straight week of losses. This has come after an emphatic rejection on the R1 Zone, where the brutal selloffs of March 2020 and January 2016 started. This shapes up to be a 4 year Cycle and both times it hit the S1 Zone. Consequently targeting 'just' the 0.786 Fibonacci level (TP = 1.26000) seems like a conservative target. The sell trigger for those who want a confirmed signal will be a crossing of the 1M RSI under its MA. ## If you like our free content follow our profile to get more daily ideas. ## ## Comments and likes are greatly appreciated. ##
Short
by InvestingScope
NZDUSD: Rejection possible on the 1D MA200.NZDUSD is bullish on its 1D technical outlook (RSI = 60.829, MACD = 0.001, ADX = 25.517) as it is on the bullish wave of the 8 month Channel Down. The trend should be turning bearish soon however as not only is the pair approaching the top of the Channel Down but also the 1D MA200 and has completed a +6.18% increase like the June 12th 2024 high did. The 1D RSI is already ranged and is losing momentum so this may be the perfect level to sell. The trade is short, aiming at the S1 level (TP = 0.55250). See how our prior idea has worked out: ## If you like our free content follow our profile to get more daily ideas. ## ## Comments and likes are greatly appreciated. ##
Short
by InvestingScope
GBPJPY: Channel Down started its new bearish wave.GBJPY is neutral on its 1D technical outlook (RSI = 45.648, MACD = 0.440, ADX = 26.099) as the price is testing the 1D MA50 again, being already on a 4 red day streak. The recent March 28th high almost touched the top of the 6 month Channel Down, so it can be technically considered a LH. Since the 1D RSI already crossed under its MA, we have a validated sell signal. Both prior bearish waves reached the 1.1 Fibonacci extension. Aim just over it (TP = 186.500). ## If you like our free content follow our profile to get more daily ideas. ## ## Comments and likes are greatly appreciated. ##
Short
by InvestingScope
EUR/GBP Triangle Pattern - Bearish Breakdown SetupProfessional Analysis of the EUR/GBP Chart This EUR/GBP (Euro/British Pound) daily chart from OANDA, published on April 3, 2025, highlights a key technical setup based on price action analysis, chart patterns, and support/resistance levels. 1. Market Context: Accumulation & Transition to a Triangle Pattern Curve Zone Formation (Rounded Bottom): The market initially exhibited a rounded bottom structure (curve zone) from July 2024 to February 2025, indicating a gradual accumulation phase. This phase often signals a shift in market sentiment, where sellers lose dominance, and buyers start stepping in. Breakout from Accumulation: After reaching the support zone (~0.8250 - 0.8300), price rebounded sharply in March 2025, confirming strong buyer interest. However, it failed to sustain upward momentum near the resistance zone (~0.8470 - 0.8500), leading to consolidation. 2. Formation of a Symmetrical Triangle Pattern Lower Highs & Higher Lows: Price action began forming a symmetrical triangle, a classic consolidation pattern that typically precedes a strong breakout. The market is currently trading near the apex of the triangle, indicating that a breakout is imminent. Potential Breakout Direction: Symmetrical triangles are neutral patterns, meaning they can break either upward or downward. However, the price structure and resistance rejection suggest a higher probability of a bearish breakdown. 3. Key Levels & Trading Setup Resistance & Support Zones: 🔴 Resistance Zone (~0.8470 - 0.8500): This area has repeatedly acted as strong resistance, where sellers have consistently pushed prices lower. A breakout above this zone would indicate a bullish invalidation of the current bearish bias. 🟢 Support Zone (~0.8250 - 0.8300): This level has held price multiple times, acting as key support. A break below this zone would confirm bearish momentum, targeting lower price levels. 4. Bearish Trade Setup 📉 Entry Strategy (Short Position): Wait for a confirmed breakout below the triangle’s lower trendline (~0.8320 - 0.8350). A retest of the broken support turning into resistance would provide the best short entry. 📌 Stop-Loss Placement (~0.84764): Positioned above recent highs and the resistance zone to minimize risk. This ensures the trade is protected against potential false breakouts. 🎯 Profit Target (~0.81190 - 0.81134): The projected move aligns with historical support levels, making it a logical target. This level represents a previous market structure where buyers stepped in. 5. Conclusion & Trade Considerations ✅ Bearish Bias: The price action and pattern suggest a higher probability of a downside breakout. ✅ Defined Risk & Reward: A well-structured stop-loss and target level ensures a solid risk management strategy. ✅ Watch for Confirmation: Traders should wait for a confirmed breakout before entering a trade to avoid false moves. 📊 Overall Verdict: A high-probability short setup is forming, with a clear entry, stop-loss, and take-profit strategy. If the market respects the triangle breakdown scenario, this could lead to a significant bearish move toward the 0.81190 target.
Short
by GoldMasterTrades
USDJPYHello Traders! 👋 What are your thoughts on USDJPY? USDJPY is moving within a descending channel and has currently reached the top of the channel, just below a resistance zone. We anticipate some consolidation in this area, followed by a potential drop toward the bottom of the channel. For a safer sell entry, it’s better to wait for a break below the specified support level. After the breakout, a pullback to the broken support could offer a good sell opportunity. 💡Will USD/JPY respect the channel and head lower, or break out to the upside? Share your view below! 👇 Don’t forget to like and share your thoughts in the comments! ❤️
Short
by HAMED_AZ
17
AUDUSD Tap Reading/ Trading Math Analysis Reversal Predictions BDear Trader, Please find attached my analysis of $Subject, which uses mathematical calculations to identify potential reversal times and price levels. The analysis details projected south and north price targets (horizontal lines on the chart), along with estimated time frames for possible reversals (vertical lines on the chart, accurate to within +/- 1-2 candles). Please note that all times indicated on the chart, including the vertical lines representing potential reversal times, are based on the UTC+4 time zone. To increase the probability of these analysis, I recommend monitoring the 5-minute and 15-minute charts for the following key reversal candlestick patterns: Doji’s Hammer/Inverted Hammer Double/Triple Bottom/Top Shooting Star Morning Star Hanging Man I welcome your feedback on this analysis, as it will inform and enhance my future research. 3rd Apr12:05 PM 3rd Apr 4:30 PM 3rd APr 6:10 PM 3rd APr 6:30 PM 3rd Apr 10:25PM 4th Apr 2:10 AM to 2:30 AM 4th 4:30 AM to 5:35 AM 4th 10:30 AM Regards, Shunya Trade ⚠️ Disclaimer: This post is educational content and does not constitute investment advice, financial advice, or trading recommendations. The views expressed here are based on technical analysis and are shared solely for informational purposes. The stock market is subject to risks, including capital loss, and readers should exercise due diligence before investing. We do not take responsibility for decisions made based on this content. Consult a certified financial advisor for personalized guidance.
by shoonya0000
EURUSD: Forming long term top inside 5 days.EURUSD is bullish on its 1D technical outlook (RSI = 59.837, MACD = 0.006, ADX = 25.790) as since last Thursday it is rebounding on the 1D MA200. This is a perfect repetition of the September 2024 Double Top and right now we are on the final mini Channel Up, which inside 5 days priced that past top. Consequently we are prepared to turn bearish by halfway next week and aim for the S1 initially (TP = 1.0400). See how our prior idea has worked out: ## If you like our free content follow our profile to get more daily ideas. ## ## Comments and likes are greatly appreciated. ##
Short
by InvestingScope
1
USDJPY NEXT MOVE Support Breakdown: The analysis assumes that the price will respect the support level and bounce back up. However, if the support at around 149.000 is broken, we might see a further decline rather than a bullish reversal. 2. False Breakout at Resistance: The target suggests a move toward 151.000 resistance. However, price might fail to break above resistance and reverse back down, trapping buyers in a bull trap. 3. Sideways Movement (Consolidation): The price may not follow the expected movement and could enter a range-bound phase, moving sideways between support and resistance. 4. Fundamental Factors: Unexpected economic news, central bank intervention, or geopolitical events could disrupt the technical setup, leading to an outcome that does not follow the projected path.
Long
by Vip_Signal
3
Trend Changing Pattern (TCP) ExplainedIntroduction One of the most important skills in forex trading is learning how to read price action and understand what the market is telling you. Price is not just numbers — it’s the collective perception of traders, making it the most reliable leading indicator available. Today, I want to explain a powerful concept known as the Trend Changing Pattern (TCP) — a crucial tool for identifying potential market reversals and shifts in trend direction. 📈 What Is a Trend Changing Pattern? In any trending market, whether it's an uptrend or downtrend, the trend won’t change easily. The strength of the trend and the timeframe you're trading on will determine how long it takes for a true reversal to occur. One key signal of a trend change is a shift in momentum: In an uptrend, when a momentum low forms during a pullback, it can be a sign that the trend is beginning to reverse. In a downtrend, a momentum high during a pullback can signal a potential bullish reversal. These are what we refer to as Trend Changing Patterns (TCPs) — moments where the structure of the market starts to shift. ⚠️ Watch for Manipulation After the TCP After a TCP appears, it's common to see price manipulation before the new trend fully takes hold: In an uptrend, price may return to manipulate the previous high before continuing down. In a downtrend, price often dips to manipulate the previous low before reversing higher. Being aware of this common liquidity grab helps traders avoid being trapped and instead position themselves in alignment with the new trend. 🧠 Final Thoughts Understanding how to spot and interpret a Trend Changing Pattern gives you a major edge in forex trading. It helps you stay ahead of the market and make informed decisions based on price action, not emotion. 🎥 In the video, I go into more detail about momentum highs and lows, and how to recognize these key patterns in real time. Be sure to check it out if you want to sharpen your trend reversal strategy. Wishing you success on your trading journey! 🚀
Education
by Charts247TradingAcademy