Cash Cow trading strategy
It is no secret that technical analysis, one way or another, is built on various Patterns. Many people mistakenly believe that patterns only exist during analysis. candlestick chart, However, this is not the case.
In fact, a pattern is a kind of regularity that has been repeated many times in history.
That is why the intersection of moving averages, the breakdown of support and resistance levels, and entry into the market from the oscillator is pattern trading.
Actually, to be honest, a pattern is an ordinary statistic that we record and work on every day.
However, there is one unspoken rule among traders that has been confirmed by time.
That is why, if you conduct a simple analysis of the most popular candlestick patterns and figures of graphical analysis, the most common and obvious ones that we see every day have a fairly low percentage of completion, and those that appear extremely rarely and require experience to identify them, most often turn out to be profitable.
The Cash Cow strategy is a trading technique that is built on a simple pattern of movement of the Pound/Dollar currency pair and does not contain a single indicator or candlestick figure.
The Cash Cow trading strategy can be applied to other currency pairs, however, to do this it is necessary to calculate the average movement of the currency pair and determine which selected distance is a deviation from the norm.
The strategy is used on the daily chart with subsequent entry into the market on the hourly time frame.
Brief information on the Cash Cow strategy. Trading signals
If you are an experienced player in the market, you have probably noticed that the price almost always moves in a narrow range and only on some days there are strong price surges that literally in a day carry the price equal to a week or more movement.
Such situations are extremely rare, and among traders they are usually called “Price Explosion”. Each currency pair has its own value, which reflects the deviation from the norm. For example, for the Pound/Dollar currency pair, a price explosion is considered if the price has passed 140 or more points per day on four-digit quotes.
If we talk about the reasons for the appearance of price explosions, it can be noted that they appear at the time of the release of strong fundamental statistics, which sets the trend of movement for many days ahead.
Based on this, a simple pattern can be traced, which is that if there is a price explosion in the market, then there is a high probability that the trend will continue and go in the direction of the price explosion. So let's take a closer look market entry signals.
Buy signal:
1) An upward “Price Explosion” occurred on the market, namely, the price overcame 140 or more points in a bullish direction during the day.
2) On the next trading day, we wait for confirmation of the development of an upward trend in the market, namely, the price must move 70 points up from the closing price of the previous day’s daily candle.
After the price overcomes the distance of 70 points, the market is entered using a closed candle. Risks should be limited with a static stop order of 60 points, and exit at profit occurs when a profit reaches 100 points. Example below:
Sell signal:
1) A downward “Price Explosion” occurred on the market, namely the price overcame 140 or more points in a bearish direction during the day.
2) On the next trading day, we wait for confirmation of the development of a downward trend in the market, namely the price should move 70 points down from the closing price of the previous day’s daily candle.
As with a buy position, entry into the market occurs on a closed candle when the 70 point mark is broken. The stop order should be used static, exactly 60 points. Exit from the market occurs at the set profit, which is 100 points. Example:
In conclusion, it is worth noting that the Cash Cow strategy is a simple, indicator-free trading technique that can be used by both experienced players and beginners.
Despite the fact that the strategy itself is focused on the currency pair Pound/Dollar you can easily adapt the tactics to use on any currency pair, the only thing you need to know is the optimal number of points for a price explosion on each currency pair.