We continue to study the features of using the trading system “Two screens of graphic models”
Achieving convergence zones identified through harmonious trade is an optional condition for using the “ Two screens of graphic models ” system. If you use the price action, you are aware of all the advantages of trading at two-time intervals and are purely psychologically ready to implement such a golden rule as “ keep losses low and let profit grow ”, you will always find an opportunity for effective entry into the market.
In a previous article, I talked about an explosive mixture in the form of a combination of the “ Three Indians ” and 1-2-3 patterns, which with high probability predicts a reversal. Let me remind you that harmonious trade is based on the principle of changing the direction of price movements with a high degree of probability when reaching the convergence zone. This allows you to combine the two techniques and expand the boundaries of the application of the trading system “Two screens of graphic models”. If you expect the above combination of patterns to form on the daily charts, then if you have confirmation signals, shift your attention to a shorter time interval and start looking for an entry point.
So on the USD / JPY chart, the inability of the bulls to move the pair quotes above the level of 88.6% of the wave 1-2 of the 1-2-3 pattern became the first sign of their weakness. Given the previously formed “Three Indians”, it could be assumed that the yen is ready to turn against the US dollar and move to a smaller time frame. In general, as my practice shows, the assault on the levels of 78.8% and 88.6% is an extremely important event from the point of view of revealing the correlation of the strengths of “bulls” and “bears”.
On the USD / JPY hourly chart, price action fans simply found the head and shoulders reversal pattern. Its constituent elements are “Shark” and one of the models of harmonious trading based on 1-2-3 (“Gartley”, “ Crab ”, “ Bat ” or “ Butterfly ”). The latter allows you to identify targets, however, in the case of the trading system “Two screens of graphic models” this is unprincipled. The targets in it are placed on a larger time interval.
Head and Shoulders on the USD / JPY hourly chart
The following is a search for entry points to a short position and placement of a stop order. In our example, a break in the neckline of the Head and Shoulders pattern or its retest would allow the formation of shorts. A protective stop is near the maximum swing and is equivalent to 35 pips.
Strategy “Two screens of graphic models” on the hourly chart USD / JPY
Placing targets on a larger time frame allows you to increase the profit factor and, with effective strategy development, make good money. However, to use the golden trading rule “keep your losses low and let your profits grow” you need to be prepared psychologically. The increased risk of lost profits forces not only private traders but also hedge funds to exit transactions. In the USD / JPY example, a short position target is placed near the convergence zone. It allows you to identify the “Gartley” pattern.
The Gartley pattern on the daily USD / JPY chart
The ratio of potential profit to loss exceeds 8 to 1. With this profit factor, the probability of positive transactions can be even less than 50%, but this will still make money. In my opinion, the use of the Two-Screen Graphic Models trading system makes it possible to think logically and turns trading into a creative process. This is important, as the routine following of signals quickly bothers.