Three Touch Trading Strategy and Model
In the master class "Be a Trader with iLearney"
Traders who want to not just trade with someone else's ready-made system, but are trying to understand the causes of the current dynamics of the market quotesIt is difficult to find an adequate and logically understandable strategy. Using the principle "don't think, but enter when the signal comes" makes us mechanical machines, competing with each other on the speed of reaction. We resemble trading robots, initially losing to them in the speed of pressing the keys "buy" or "sell". At the same time, many companies choose people to manage accounts because of their ability to react more flexibly to constantly changing market conditions.
Building supports and resistances
The current situation forces traders to be more balanced in their choice of a trading system. It should be not only effective, but also understandable. Now, for example, many experts recommend refraining from building diagonal support-resistance lines and replacing them with horizontal ones, because "big players will surely defend the levels at which they previously operated.
Nevertheless, diagonal analytical lines have proven themselves well in the past, and abandoning them has more to do with a greater understanding of modern methodology than with an attempt to build an intuitive trading system. However, the use of the principle "on the contrary" allows you to develop and implement in the practice of its activities quite curious strategies.
Assuming that an unsuccessful test of the analytical line indicates weakness of the opposite side, this situation can be used to formalize the system of trading on the trend.
The principles of the "Three touches" model
On the 4-hour chart of the currency pair dollar / franc is clearly visible unsuccessful breakdown of the support line. It is usually qualified by the unwillingness of prices (currency quotes) to close below the analytical line. The resulting bounce could be used to open a long position at the closing price of the breakdown bar.
The given model is called "Three touches.". It assumes trading in the direction of the current trend, based on an unsuccessful test of the analytical line. To identify the pattern, find two declining highs in a falling market, or two rising lows in a rising market, through which the line is drawn. According to the rules of technical analysis it is a diagonal resistance (support). According to the rules of the model it is used to identify the third touch.
Additional filters of the "Three Touch" strategy
Since such configurations are constantly occurring in the market, traders should build a system of filters. One of them is related to the use of horizontal trend lines.
On the daily chart of the currency pair EUR/USD is clearly visible that the third touch, which occurred in the area of $1.33 per unit of the single European currency, corresponded to the location of the horizontal trend line. In October-November last year it served as supportIn February-March of this year - resistance. The next unsuccessful test of this area became the reason for the development of a bearish trend.
Of course, the trading system can be complicated a bit by using Demark qualifiers or other filters. We will definitely talk about that in our next conversations. But first, we have to determine, which additional parameters of the system will make it more efficient? Are they worth using at all? Perhaps some of our readers have already been using the "Three Touch" model in their trading? It would be interesting if they were willing to share their recommendations with other traders.