Linear regression TS

Very simple, we need to draw a linear regression channel (LRC) from a significant high or low, we enter with fractional entries when price approach the extremes of the channel (I use an EA which buy or sell when price cross a trendline with a specific description), targeting previous high or low. Refer to the image I upload, we buy at point 1-2-3-4...This is averaging down your trades if your first entry doesn't reach target. Averaging down could be very dangerous if you don't know where to average down or if you enter with a too large size, but done properly is one of the best way to be profitable in this game.

Point of entry (POE).
We draw them by projecting the measured move of the leg which break the linear regression channel (from point 0 to 1 in the image I posted).
If you feel that the channel is weak and is not going to last you can wait its BO, projecting the POEs and enter at points where the market is more likely to turn (for example after a break of a previous low, refer to the second linear regression channel I marked in the image posted) and start building our positions from there. You can choose if be aggressive, incrementing the lot size at every POE or be conservative and mantain the same lotsize of the first POE.

Exit.
When our positions start to be profitable it's highly recommended to start trailing securing profits, draw the new LRC from the previous high or low which generated the BO of the old LRC and start the process again.

Stop loss.
We decide the SL based on the historical behaviour of price, for example in GY I would close all my positions at point 5.

Update: I do not always entry blindly scaling in, I prefer to do that only when a major low or high has been taken, otherwise your drawdown could be important. So when no major high low is taken but I notice a nice break of a LRC I just trade price action on the POEs with strict stop loss and a good risk to reward ratio (starting from 3 to 10-12, but then I help myself trailing profit drawing new LRC as price shows its way; refer to post #43).

Another example on UC Daily chart, by the time the market returns to the red mark you are break even and you can start trailing your positions in profit. If you decide to use an aggressive position sizing (ex. 0.1 lots at POE1, 0.2 at POE2 and 0.3 at POE3) you would have started trailing profit sooner, this comes however with bigger risk and drawdown for your equity.

Notice here on GA daily chart the measured move originated from the BO of the LRC, if you had bought pounds at POE1 and POE2 you would have reach your take profit at red circle. Price behaviour at red circle tell us that big banks and funds that have bought at POE1 and POE2 now are taking profit and the dumping starts again. I'v seen this so many times that I'm now convinced their trading approach is only grid trading.

GU weekly: notice that mantaining a small size in your entries let you overcome even monster move as the Brexit one (red B), which was just the resuming of the downtrend which broke a 7 years long LRC...if you bought pounds at 1 and 2 you would have been break even at the red dash I drew, from there you start trailing profits towards our target (red circle)

LRC works on every timeframes, here AC 1 hour chart with POE1 and POE2 and the take profit marked with red circle, as you can see sometimes price can retest prior high, so it's worth sometimes let your profits run with a 50% or 60% trailing stop (depends on your preferences and backtesting).
A good method to know you are drawing a correct LRC is to seek at least 3 swings that touch the LRC upper lower borders.
Notice also how a new LRC is forming as the old one gets violated, you need a little of practice with this tough but once you get it, it will come natural to see a new LRC forming.

Very interesting, thanks. I have some questions about TP and SL. Do you always use point 1 as TP or you may use point 2 for example if you are in profit? When you say you use point 5 as SL, do you mean that if price goes to 5 level from the initial breakout then you close all your trades with a loss?
What TF do you prefer to trade?

Hi Dezil, yes generally my TP is at POE1 if the first position doesn't go tagging previous high, I may use POE2 as TP if market went down to POE3 and I had incremental entries (with 0.1 lots at POE1, 0.2 at POE2 and 0.3 at POE3) otherwise with same lotsize entries I would just be BE at POE2 and aiming to POE1 or previous major high as my TP. It all depends on your money management and risk tolerance. POE5 is my stop loss, if market doesn't turn before that we are in strong fundamental trend much bigger than the timeframe we choose to trade, that's why the bigger the timeframe you pick the more probabilities you'd have to survive a big big move. Generally I don't go under 1 hour charts to calculate my LRC (1 hour charts all zoomed out on mt4 give you about 3 months of price behaviour so you can identify nice structures where price has create value). There are no strict rules however, as every market is different and always changing.

I have been looking at the charts for the last few hours for this strategy (actually I dont know whether to call this a strategy or a pattern or something else) and what I believe you have spot on a very good trading idea. For the money management starting to trade at level 2 and then trade accordingly level 3, 4 and so on may filter DD. Unfortunately I couldnt find an answer for when the move finishes... and whether to start the regression from the first point or the new leg

One more question about LRC drawing. We start channel from sagnificant high or low, but what is the end point for the channel? Is it latest HH or LL or current price?

You have to set the LRC with the ray option checked on your mt4, so it projects possible point of swing, the move finishes when we have a BO of the channel, the new LRC starts with the last high or low, sometimes I include also the leg which originated the last high or low of the channel, this is very subjective and to your eye, especially when a new price channel is forming and you don't have enough swings (at least 3) to draw new LRC.

No it's not the current price, you have to consider the last high or low and the next 2 swings that originated from there. It takes a bit of time and you need to play a little bit with the LRC tool to understand how it behaves when you include certain swings in it, just play with it until you have a tight channel that contain all the swings of a certain move, usually BO of a LRC are pretty neat and you can spot them as they develop.

Real time trade, I'm short AN from POE2, target POE1, got another limit pending at POE3 and 4, SL at POE5.


short UJ from POE1.

a little update: just look at where AC reacted today...exactly at POE3, and then observe where price stalled just under POE2 and median line of the new bearish LRC. I'd say the bullish LRC I marked was pretty neat in projecting future price reaction, there are some buyers out there watching these levels, so I'll be throwing some orders at POE4 and POE5.

LRC and measured moves seems to work in every timeframes, yesterday while I was watching EU 5 min chart happened this...it seems the best way to take advantage of these moves is to put limit orders at every POE with TP at POE-1, example enter limit at POE3 with TP at POE2.

Everytime you see prices making value in an area (here is clearly visible a channel, look at the swings the price makes in it, I can count at least 6 of them) you can fairly assume that in future its gravity will affect price when it eventually comes to the projections of the leg which broke the LRC of that value area. I'll follow this one, setted 2 pending sell limit orders at POE 2 and POE3.
To understand well the concept of price making value in an area I strongly suggest you to read the book "Price Action Breakdown" by Laurentiu Damir.

Have been throughly backtesting this strategy with a slightly different approach. An extra indicator-trendwave is used to determine the trends/swings/legs

For a buy:

- Need to see a trendwave dot indicating long
- Find the low point to start drawing the channel (regression channel uses close price but take only the low and high price/wicks/upticks)
- Then extend the regression channel as price prints out new highs
- When the channel is broken place the fib tool (with levels 1-2-3 etc) to the high and 2nd leg to the cross of the channel. Better change the chart from candlesticks to line chart to see the cross.
- And martingale at the levels according to your risk take and account size. During backtests did not see 7 th level activated but that doesnt mean it wont- therefore you may use a hard stop like %x of your account

Some extra rules:

- If first trade entry level is beyond the low/high point then the pattern is invalid, wait for a new high/low
- If trades are opened and closed, have to wait for a new hi or lo

This works on all time frames but ,t more effective on M30 for intraday trading in which you can daily get 20-60 pips per pair

An example for short for AUDCAD M30 today

Nice contribution Brok, just remember that you want at least 3-4 swings in your LRC and that the more swings you have in the channel the better it will act as a magnet when price break out of it.

This was one of the differences than your method.. You dont have to count or look for swings like you do if you trade with trendwave... As you see in the picture actually that was just a leg.

For example for the AUDUSD trade for this morning there was an oppurtunity for about 6-7 pips... This is sometimes like scalping - because of the levels being close to each other and the length and width of the LRC. But 6 here 20 from AUDCAD and so on without a loss, it makes a good strategy



PS: After TP hit need to see a new high or low.. Now that we have the new high we shall wait for a BO or if the price makes new lows we have to adjust the channel

EURUSD trade