Bounces Off Levels Trading Strategy

I guess, everyone who is ambitious enough to trade without indicators faces a question right away: which elements of Price Action analysis do they use for their trading in Forex,
 
 futures 
, or stocks markets? Anyway, there is an element present at almost any trading strategy, including those that use indicators – and these are horizontal support and resistance levels. In this article, we will construct a full-scale trading strategy with no indicators, based on just those levels and on the most frequent interaction of the price chart and the levels, which is a bounce off the levels.

I have created this strategy particularly for trading NZD/USD in Forex or the future analog of the pair 6N. The timeframe of the chart must be H1.

A signal to buy by the strategy

For a good promising signal to appear a fresh level must appear on the chart; the price must bounce off it from below, then cross it from below just once, and then again bounce off it but from above. As soon as the latter bounce ends in a new local low, we can place a pending Buy Limit order, counting on a bounce off the level whenever the price decides to approach it again. If this happens, statistics will play on our side: statistically, the price is more likely to bounce off the level then cross it.

Place your Buy Limit 1-3 points (10-30 pips for 5-digit prices) plus the current spread above the level. The exact distance depends on each particular situation; however, you can decide for yourself a set distance to get rid of unnecessary doubts and use it in every Buy Limit case. Examples of a signal to buy:

I will mention this once again: after the price crosses the level from below, there must be just one bounce off the level in the form of a local low because for trading bounces fresh levels are the best. In the example to the right of the rest, I have given en example of a Buy Limit level touched by several local lows because in this example, there was a narrow consolidation right at the level that can be interpreted as one second bounce from above.

A signal to sell by the strategy

For a signal to place a Sell Limit to appear, we need a level, a bounce off it from above, a crossing from above, then a bounce from below, ending in a new full-scale local high. As soon as this happens, place a Sell Limit 1-3 points (10-30 pips for 5-digit prices) under the level. In fact, you can place the Sell Limit just at the level, because quite often the price approaches it for the second time and touches it. This way, you can cut down on the risk and improve the potential profit-to-loss ratio. However, quite often, the price just does not reach the level, so control your appetite unless you want to remain without a position at all, especially that you have just one instrument – the New Zealand dollar. I insist that it is the most suitable one for this type of trading. Examples of signals for short positions by the strategy:

Roboforex 2

Stop Loss and Take Profit when trading bounces off H1 levels

Place your Stop Loss at the same distance from the level that you place your pending order on the other side of the level. The only difference is that when placing an SL, you take care of the current spread when selling instead of buying.

As for cutting down on risks and trailing positions, you can use growing new extremes when buying and falling extremes – when selling. I actively advise you against transferring the position to the breakeven until one more extreme emerges that allows doing it, because without serious reasons, such an action can cause unnecessary risk to your position. The only option is as follows: if the price starts to reverse not reaching the TP just a bit, and there is no new extreme, you can take your SL to the entry level.

Place your Take Profit before the farthest local extreme from the level that formed after that very single crossing of the price and the signal level. Note that in this strategy, the risk-to-profit ratio might seem quite palpable, possibly compensating for a series of losses by just one profitable trade.

Money management in the strategy

This strategy of trading bounces has rather small tick-sized risks. Hence, for trading by it, you can use not only strict percentage risk of 2%, better 1% of your deposit but also a set lot. Whichever method you choose, take your time on your days off to analyze your trades and alter your money management method if necessary.

Examples of trading:

Roboforex 3

Though this trading strategy looks rather simple, you should not be mislead by the simplicity and ignore possible troubles. Your greed will always be fighting your fear because the pending order and Stop Loss are so close to one the other. Hence, you need to be ready for most disappointing losses or situations when your order will not be activated because the bounce happened a
 
 pip 

Pip

In forex markets, a pip is a percentage in point or price interest point (pip), reflecting a unit of change in an exchange rate. Major currency pairs are traditionally priced to four decimal places – a pip is one unit of the fourth decimal point, or 1/100 of a cent. The exception in this case is the Japanese yen, in which a pip is one unit of the second decimal point. Pips adhere to a rate of change that may be related to a value change in a position of specific currency rates.  Forex is traded often in a lot size of 100,000 units of a base currency. In this instance, a trading position of one lot experiencing a change of 1 pip would see a change in value by 10 units of currency. Understanding Pips in Forex Trading Pips can best be understood using an example of two currencies. For example, if the NZD/USD is trading at an exchange rate of 0.6800 and the rate changes to 0.6810, then the price ratio increases by 10 pips. By extending this example, if a forex trader buys 5 lots (i.e. 5 × 100,000 = 500,000) of NZD/USD, paying $650,000 and closes the position after the 10 pips’ appreciation, the trader will receive $650,500 with a profit of $500 (i.e. 500,000 (5 standard lots) × 0.0010 = $500). Pips are highly relevant to forex traders given the use of leverage and trading that takes place in margin accounts, which require very small percentages of the actual purchase price as equity for a given transaction. Some retail brokers will quote currency pairs beyond the standard 4th or 2nd decimal place, instead to the 5th or 3rd decimal place. These are quoting fractional pips, known as pipettes. 

In forex markets, a pip is a percentage in point or price interest point (pip), reflecting a unit of change in an exchange rate. Major currency pairs are traditionally priced to four decimal places – a pip is one unit of the fourth decimal point, or 1/100 of a cent. The exception in this case is the Japanese yen, in which a pip is one unit of the second decimal point. Pips adhere to a rate of change that may be related to a value change in a position of specific currency rates.  Forex is traded often in a lot size of 100,000 units of a base currency. In this instance, a trading position of one lot experiencing a change of 1 pip would see a change in value by 10 units of currency. Understanding Pips in Forex Trading Pips can best be understood using an example of two currencies. For example, if the NZD/USD is trading at an exchange rate of 0.6800 and the rate changes to 0.6810, then the price ratio increases by 10 pips. By extending this example, if a forex trader buys 5 lots (i.e. 5 × 100,000 = 500,000) of NZD/USD, paying $650,000 and closes the position after the 10 pips’ appreciation, the trader will receive $650,500 with a profit of $500 (i.e. 500,000 (5 standard lots) × 0.0010 = $500). Pips are highly relevant to forex traders given the use of leverage and trading that takes place in margin accounts, which require very small percentages of the actual purchase price as equity for a given transaction. Some retail brokers will quote currency pairs beyond the standard 4th or 2nd decimal place, instead to the 5th or 3rd decimal place. These are quoting fractional pips, known as pipettes. 
Read this Term away from where you had supposed, and then the chart reached the TP. To avoid empty hopes deteriorating your trading results, you need to have a head as cool as possible, sticking to your trading plan no matter what. Good luck!

By Dmitriy Gurkovskiy, Chief Analyst at RoboForex

https://www.forexlive.com/Education/bounces-off-levels-trading-strategy-20211230/