Medium-term pattern – WMDF strategy
Briefly, the idea of trading can be described as identifying a level on a daily chart. On the hourly timeframe, we are waiting for a false breakout and a return of candles beyond the level. You’ve probably dealt with false breakouts before, the whole value lies in the rules for filtering them.
For work you will need:
- trading terminal;
- ATR indicator – needed when determining the position of levels;
- volume indicator. Ticks will not work, so you will have to either install indicators from Cluster Delta in MT4, or use Think or Swim or another terminal that shows real volumes.
Indicators are not used to search for entry points
Building support and resistance levels
We build them on the daily chart, work in the following order:
- visually determine the points of trend change;
- after the reversal, the chart should move in a new direction 4 x ATR for currency pairs and 3 x ATR for stocks. Leave the ATR period as standard – 14;
- we look at the indicator of real volumes – there should be an increase;
- the level is plotted according to the candlestick shadow corresponding to the trend reversal.
It is necessary to solve 2 problems – to determine a false breakout and identify the return of the chart beyond the level. The following order of work is proposed:
- waiting for the level breakout. A breakdown is considered the moment when three candles in a row on H1 open and close behind the level. That is, the Open and Close prices must be behind the level. The size of the candlestick body and its color does not matter. It is desirable that the candlestick does not touch the level with its shadow;
- after the chart reversal, wait until the candlestick returns below the level – pay attention only to the closing price;
- as soon as the first 2 conditions are met, set the pending Sell Limit or Buy Limit level (depending on the direction of trade) below the level. Stop loss is always set outside the extremum reached during a false breakout;
- when setting take profit, you can use the Safe rule or focus on the following levels.
Winrate is above 70%, drawdown at the moment was 15.64% of the deposit. Please note that the work was carried out only according to the considered pattern, other methods of entering the market were not used. If you use the WMDF strategy at 100%, the drawdown is usually no higher than 5-7%, and the deposit growth curve is smoother.
This pattern can be viewed as an independent strategy. Remember that for an acceptable trading frequency, you need to track several dozen instruments. If you work with only 1 currency pair, then you will conclude transactions less than once a month. There are no other drawbacks to this trading technique.