2021-04-02 16:45:14
Both beginner and professional traders must dream of buying an asset low and sell it high It won’t be hard if the trend is reversing.
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The main thing is not to try catching falling knives but wait until they go into the floor. One of the strategies which allows doing so is the Ross Hooks pattern
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When a reversal pattern occurs in the chart, there’s a desire to open a position opposite to the current direction of quotes. Beginner traders are usually itching to do it immediately.
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Experienced traders, on the contrary, wish to have a confirmation of whatever it may be: the price chart’s crossing the MA or any other signal.
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The author of the strategy, Joe Ross, singled out the presence of a clearly distinguishable trend, which changes with the 1-2-3 reversal pattern, as a precondition for using the strategy. The buyers’ or sellers’ inability to update an extremum in point 1 is the first sign of their weakness in the bullish or bearish market, respectively.
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At the same time, the quotes mustn’t update a maximum/minimum in point 3, or else speaking of a reversal will be too early.
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Once a new RH (Ross Hook) extremum has occurred after the 1-2-3 pattern and Ross Hook Reversal (RRH) has come next, we may say that Ross Hook has formed.
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I’ve used the EMA-200 (200-day exponential moving average) as a signal to confirm that the market trend has reversed. If a currency pair’s quotes are located under the EMA-200, we deal with a bearish trend, and vice versa.
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To open a position using the Ross Hooks pattern, we need to wait until the currency price has returned to the RH point. It’s where a pending order to buy is placed, in the example with NZD/USD.
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The peculiarity of the first entrance is a large stop order. It’s placed in the area of point 3 of the 1-2-3 pattern.
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The trader has to be sure that the sellers won’t take control over the market again in the nearest future In the case of the NZD, the stop order is 200 points, which is quite a big value for the H4 time frame.
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The trader needs to know money management well. In other words, when using Ross Hooks, we need to start with moderate values and then build a position as we grow more confident of a trend reversal
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The strategy is efficient in the trend market and is absolutely useless when the market is flat. When re-entering the market, the trader needs to make sure that the quotes are located above the MA and there are reversal patterns in the area of retracements (RRH points).
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As an upward movement continues, protective stop orders become narrower. They may be placed below corrective lows. It will allow increasing the volume of positions.
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The trader becomes confident that the knives are stuck in the floor and can be slowly withdrawn.
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Besides entry points, stop orders, and the size of a position, any trading system provides for exit points. Joe Ross doesn’t give them special mention, but the trader can easily calculate prospective profits using Fibonacci ratios and Pivot points
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