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Rollback Strategy - Recommendations for Opening Orders

Tuesday, 14 November 2017 00:00
Rollback Strategy - Recommendations for Opening Orders

The Rollback Strategy was made for trading binary options, but at the same time, it can be used for highly volatile currency pairs on the Forex market. Such a methodology is based on profit-making through a price rollback after a strong jump in the price of the asset. We will talk about the features of this trading method, below.

Characteristics of the Trading Method

Working on the Rollback system, you can choose any timeframe within a day and hour. Since the analysis is point-to-point, you need to see the moments of the price reversal clearly.

There are no restrictions for trading assets. Of course, it’s better to choose highly volatile pairs, as they will show a turn than rather stable ones.

Rollback Strategy Description

Those who choose the strategy in question should be able to make a qualitative fundamental analysis. That is, navigate the financial news and interpret it for price fluctuations. In other words, you need to be able to foresee the price jumps a little.

However, it gives you an advantage: the news that causes the strong price fluctuations fly around the whole world instantly, so it's difficult to miss them. This is a pleasant benefit of the Rollback system.

The biggest jumps in quotations occur for the following reasons:

  • After the release of important news;
  • After the appearance of a large investor whose actions cause the fluctuations in asset prices on the market

The second case is rarer on the market than the first one, and it’s more difficult to predict, but it’s impossible to discard the investor's activity.

In fact, it’s quite easy to find the price jump on the chart. It’s enough to visually assess the current situation. Since we are interested in strong jumps, the necessary event won’t go unnoticed.

Pay your attention to 2-3 candles, which are larger than the rest ones. If the candles are ascending, then the price stepped up, as on the figure below, and vice versa.


Opening / Closing the Orders

If you take into account the cyclicality of the price movements on the market, you can safely say that after a sharp jump, the price will go in the opposite direction soon. Considering the picture above, it clearly shows that soon after a strong rise, the price went down. If there was a jump of the price in the downward direction, the opposite situation would happen.

Suppose there is an upward jump; then, most likely, a downward movement will appear on the market. If there is a downward jump, then the price will continue the upward movement. This cyclic action is the base of the Rollback Strategy.

Thus, at the peak, you need to open an appropriate order for price grow or decrease, waiting for the correction. However, it’s necessary considering the confirmed signals only, that is, after the end of the jump. To control the situation, use the reversal patterns:

  • A hammer or an inverted hammer - when the price goes up sharply;
  • A shooting star or a hanging star - when the price falls down.

If you see a candle with a long shadow and a short body on the chart, this is a signal of a correction of the trend. In this case, you can safely open the position in the opposite direction.

Let’s describe the algorithm of actions briefly, corresponding to the Rollback Strategy:

  1. Monitor the important economic news;
  2. Switch to the chart and look for price jumps;
  3. After the jump is over, when the reversal pattern appears on the chart, we open the order in the direction opposite to the previous move.

An Example of a Rollback Deal

Let’s consider the application of the Rollback strategy in practice. Suppose that the Fed chairman declared the introduction of changes in the United States monetary policy. That is, inflation will continue to grow, depreciating the dollar. This news shook the position of the US currency and, as a result, the USD/JPY pair fell sharply.

As soon as this news was published in the public media, the chart formed a drawdown in the form of three descending candlesticks of much bigger size than the rest ones. Further, a hammer will form, after which the trend will quickly change. In such a situation, you need to open an order for purchase.

Summary on Rollback Strategy

As you can see, the Rollback Strategy is quite simple. There is no need to use any indicators, because it’s is enough to see the chart by your own. In addition, it’s easy to set up the automatic trading, which will simplify the profit-making.

However, in contrast to these facts, it should be noted that all the trading systems provide a certain percentage of loss-making transactions. The Rollback Strategy is no exception, so be prepared for the fact that sometimes you will get drawdowns.

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David Melton
David Melton

Financial expert. I work with investors and different companies. I write analytical reviews for newspapers and TV channels and I also manage researching projects