Stairstep Breakout Strategy - Rules for Opening PositionsTuesday, 5 December 2017 00:00
Stairstep Breakout is a trading strategy for the Forex market, which is classified as a breakout strategy, that is, made for a range breakdown. It can be successfully applied on any timeframes. However, it shows the best results on M15-D1 timeframes.
Features of Stairstep Breakout Strategy
In practice, all the tactics used by traders in currency trading involve a certain number of false signals. During the flat period, the probability of false signals for opening the positions increases, since most instruments of technical analysis cannot correctly process data during the small fluctuations, the so-called market noise.
The difference of Stairstep Breakout is that this tactic was developed specifically for effective trading within flat conditions, and it helps a trader to receive accurate signals, even if the market has no pronounced trend.
Recommendations for Using Strategy
Before you start trading, you need to wait until the price chart begins lateral movement. This is called a consolidation of the market participants. In this case, the graph experiences only small fluctuations, being in a horizontal position. This situation indicates that bulls and bears are equally satisfied by the price. However, the struggle between buyers and sellers can only stop for a short time. As soon as either bulls or bears take an advantage, a new trend will appear on the market.
If the price enters the consolidation phase, it’s necessary to pay attention to the form of the channel formed. The experience of many traders suggests that, the larger the lateral movement zone, the stronger impulse will form a new trend.
- For this trading method, using the M15 timeframe, it’s better to use zones of more than 20 candlesticks long with a height equal to two candlesticks of average size.
- For the H1 timeframe, the consolidation zone length is 10 candles.
To make sure that the flat period begun, you can use the "Rectangle" figure in the MetaTrader terminal. You can also find this phase of the market with such patterns of graphical analysis as Triangle, Flag, etc. Also you can set up a special Dynamic Breakout indicator, which will automatically determine the consolidation areas, according to the built-in algorithms.
Dynamic Breakout Indicator
Before you start working with this indicator, it needs to be properly configured, depending on the time interval and the currency pair being traded.
The settings of this tool should be considered in more detail.
- BoxLength - this parameter indicates the length of the consolidation zone;
- BoxTimeFrame - the period by which the tool will search for consolidation areas;
- BoxRange - area width;
- AutoBoxRange - if you activate this function, the indicator will automatically determine the appropriate size of the area;
- AutoBoxRangeDailyADRperiod - ADR parameter, which is responsible for determining the size of the average candlestick on the chart;
- AutoBoxRangeDailyADRfactor is the ADR multiplier used for automatic width determination. The longer the timeframe, the higher the value of such a parameter;
- BoxBufferPips - the value of the oscillations in pips, which will not be considered a breakdown;
- MinBarsClosedOutsideBO - this parameter determines how many bars should close beyond the borders of the consolidation area, so that the instrument sends a signal to enter the market;
- ShowTPLevels - if you activate this function, the tool will display the levels where it’s worth placing the Take Profit orders on;
- SignalMail - activate this option to receive signals by e-mail;
- Signal Alert - sound alerts when a signal to enter the market is received.
On the figure below, you can see how the tool identifies and remembers the areas needed for trading:
Opening the Positions
To enter the market, it’s necessary for the asset price chart to break through the flat zone and pass through the buffer zone. Wait until two candlesticks close, and then open the pending order at the closing point of the second candle.
It’s recommended to set Stop Loss orders at the border of the flat area, on the opposite side. The Take Profit should be at least 10 percent more than the Stop Loss. You can also set the Take Profit according to the indicator and a money management strategy.
If your transaction causes a loss, you can fix it. Open a new position and set your goal at the level of the previous Stop Loss. You can also double the amount of the lot. Then, in case of success, you will not only avoid losses, but also increase your profits.
If you want to minimize risks when trading by Stairstep Breakout Strategy, follow the rules of money management. Make sure that the volume of your position doesn’t exceed 3% of the amount on the deposit. If you use a doubling, the first order shouldn’t be more than 0.5% of the deposit.
Obviously, this trading technique is universal, and it can be used with different currency pairs. We recommend testing any strategy on the demo account before starting real trading.