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jueves, 4 de septiembre de 2014

Guerrilla Trading Strategies

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In this article we will discuss a number of strategies used to trade shares on the stock market. These are the famous Pristine's guerrilla strategies which have been taught for several years. The concept on which these techniques rely the 20/20 bars. These are basically bars that have a fairly wide range in which the minimum value is very close to the opening and the maximum is close to the closing price in the case of the bullinsh bar while in the case of  the bearish bar the maximum is near to the opening and the minimum is near the closing. 

The 20/20 bars get their name from the fact that that theoretically, the opening should be at the bottom 20% of the bar while the closing price must be in the top 20% in the case of a bullish bar. For a bearish bar the opposite applies. In the next picture we see two examples of this type of bar:

The importance of the 20/20 bars is determined by the bar preceding it. That is, if the previous bar has the same direction as the 20/20 bar, we can say that this price bar is relevant. In fact, the 20/20  bars of the previous example are relevant thanks to the foregoing bars. 

Based on these bars have been created several trading strategies, some applied to stock trading. The main trading strategies based on these principles are:

Strategy Number 1 - Gap Snap-n-Play

The first of these strategies is called Gap Snap-n-Play, which according to studies conducted by Pristine several years ago, it has a reliability of up to 84%. Depending on whether we are in a bullish or bearish market, conditions to be submitted are:
  • The share price must have fallen (risen) for at least 2 consecutive days. Also the last trading session should be a 20/20 bearish (bullish) bar. 
  • If during the third session the market opens with a gap, and the price starts to go up (down in the bear case), the trader should buy (sell) when the price exceeds the minimum (maximum) of the previous session, ie the 20/20 bar. The stop loss should be placed below (above) the session minimum (maximum).
  • The position can be closed either at the end of the trading session, two sessions after or if the range of the bar is greater than the range of the 20/20 bar for example.
The following image shows a clear graphic illustration of the bullish case, in which a buy trade would be made:

Strategy No. 2 - Bullish/Bearish Gap Surprise

Now we are going to analyze the case of a strategy known as Bullish/Bearish Gap Surprise, which according to studies by Pristine with shares of both Nasdaq and NYSE has a reliability of over 80%. In this case, the conditions that must be in a bull or bear market are:
  • The price of the stock analyzed should have fallen (risen in the bear case) for at least 2 days. The bar at the last session should be a bearish (bullish) 20/20 bar with a wide range. Also the 20/20 bar must have a trading volume higher than the average. 
  • If the market starts the third session with a bullish (bearish) gap, the trader should enter from the start by buying (selling). However, we can use a filter to protect us and open a position only if the price is the maximum (minimum) of the first 5 minutes of the session.
  • The stop loss is positioned slightly below (above) the minimum (maximum) of the session. 
  • The position can be closed to take profits at the end of the session or if the range of the bar exceeds the 20/20 bar for example.
The following image shows a clear graphic illustration of the bullish case, in which a buy trade would be made:

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