Having an idea of how institutional investors accumulate strength and provoke further growth quotesThe most effective strategies for working in different phases of the market can be built.
Market phases: accumulation stage
At the accumulation stage We should pay attention to the downward movement with a possible test of the lower boundary of the trading range, as well as the correction after a successful test of the upper boundary of the consolidation channel.
Using the first entry point is a riskier option for several reasons. First, the trader does not have a firm confidence that he correctly assessed the intentions of institutional investors, and the present doubts make guess which stage the market is in: in the accumulation phase or in the distribution phase. Second, an unsuccessful test does not at all imply a subsequent breakout of the upper boundary, hence consolidation has the potential to drag on, and the trader gets into a "sluggish" market.
In addition, it should be kept in mind that a move down with an unsuccessful test of support before an upward move followed by a breakout of the trading range may not occur at all. Expecting such action, one might miss a trade.
Using graphical models
The optimal trading strategy in this situation can be the identification of reversal graphical configurations or trend continuation patterns. Combinations of patterns "1-2-3" and "Three touches" are not bad.
On the daily chart of gold futures at the lower boundary of the trading channel was formed 1-2-3" model (Fragment 1). After that, there were three rising lows ("Three Touches"), the middle and last of which were marked by the formation of a pin bar. This gave a good chance to enter from the lower boundary of the consolidation range.
The second entry point, which involves the use of a pullback after breaking resistance, is more reliable, yet can also be missed. This is due to the fact that the trader expects a return to the current support, which previously served as resistance. However, there may be no such return (Fragment 2).
Market phases: distribution stage
At the distribution stage, the optimal strategies are selling from the upper boundary of the trading range, and opening short positions when returning to the previous support line.
The principles of working with them are the exact opposite of the basics of building strategies at the accumulation stage. You should pay attention to such patterns as "Strike Day.", "1-2-3" or Anti-Turtles (fragments 3 and 4).
Using two different entry points makes it possible to build up positions. The same can be done in the up and down stages, where the most effective strategies are buying (selling) on corrective moves based on Ross hooks.
Thus, having solved the preferences of institutional investors, it is possible to build an effective trading system in any market. At the same time it is necessary not to forget about the principles of capital management and to be guided by the golden rule of trading, keeping losses low and allowing profits to grow.