INTRODUCTION
Hi everyone! This strategy guide was created for those who wish to learn more about our
trading style. The strategy consists of a continuation pattern and a reversal pattern, these two
are identified on the 1H chart in the following pairs EURUSD, AUDUSD, EURJPY and AUDJPY.
The strategy has no indicators, volumes, candlestick patterns, Fibonacci, Elliot theory or any
other usual way of analyzing the market. Actually, there is no “market analysis”, we simply buy
and sell the continuation and reversal pattern.
The goal is to train by backtesting in order to have the ability to identify the two patterns
(continuation and reverse). In our Instagram profiles (@tradeandchill.ec and @tradeandchill.fr)
there are several short videos of trades taken with these two patterns, that way you can identify
them and have a graphic example of what is sought. Moreover, we will share on our Telegram
(@tradeandchill_fx) all the trades we take in Live market so you can compare your approach
with ours.
Success to all, whether with this strategy or another. Likewise, much happiness and abundance.
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INDEX
INDEX
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NUMBERS
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GENERAL CONCEPTS
Trend and counter-trend candles
Highs and Lows
Impulsive / momentum candles
Market movements
Impulsive market
Trending market
Corrective movements (ascending and descending channels)
Trend vs ascending/descending channels
Range
Inside bar
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THE PLAN
Continuation pattern
Reversal pattern
Exit plan
Risk management
Plan summary
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EXAMPLES (Image gallery)
Impulsive movements
Trending market
Ascending/descending channels
Continuation
Reversal
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NUMBERS
Expectancy
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Risk:Reward ratio = 1:3
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Win rate ≈ 50%
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Average number of trades per month ≈ 10
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Average quarterly return ≈ 25%
General
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Time frame: 1H
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Pairs: EUR/USD, AUD/USD, EUR/JPY, AUD/JPY
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SL: 15 pips
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TP: 45 pips
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Buy/sell limit order: 3 pips above/below the last high/low
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GENERAL CONCEPTS
1. Trend and counter-trend candles
TREND CANDLES
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Bullish: Candles that break the high of the previous candle.
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Bearish: Candles that break the low of the previous candle.
COUNTER-TREND CANDLES
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Bullish: Candle that does not break the high of the previous candle.
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Bearish: Candle that does not break the low of the previous candle.
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2. Highs and lows
IN AN UPTREND:
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High: Previous candle of the counter-trend.
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Low: Most recent low before the break of the previous high.
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IN A DOWNTREND:
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Low: Previous candle of the counter-trend.
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High: Most recent high after the break of the previous low.
Examples of highs and lows:
Video explaining trend candles, counter-trend candles, highs and lows
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3. Impulsive / momentum candles
Candles with big bodies and small wicks. They are much larger than the rest of the candles, so
they are obvious and easy to identify.
The average size of the 1H candles in the pairs of this strategy is 10 - 15 pips. An impulsive
candle is a candle that has more than 20 pips of body.
These types of candles are the first indication of where the market is going. Large bullish
momentum candles will give a buying sentiment, on the contrary, large impulsive bearish
candles will give a selling sentiment.
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4. Market movements
The two opposite of the market’s nature is an impulsive market (first image) and a
corrective market (third image), while a middle equilibrium is a trending market (second
image).
If the price increase or decrease is vertical, it takes a few hours and the candles are large with
momentum, the market is impulsive. This nature means that the trend momentum is intact
and very strong.
If the price increase or decrease is diagonal / vertical, and creates highs and lows along the
way, the market is trending. The more vertical the price, the stronger the force in the trend.
On the contrary, a corrective nature is a movement that takes many hours, the candles are
small, and it is a more diagonal / flat movement. This nature means that the strength in that
direction is getting weaker.
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5. Impulsive market
Increase or decrease of the price in a short amount of time. An easy rule to identify it is
to find a movement of 30 pips or more which happened in less than three hours. They are
made of two or three candles and are characterized by their vertical and aggressive’s
movements.
In these cases, the trade will be open according to the current trend due to the intact
strength of the market.
Examples: Impulsive movements
Video explaining trend candles, counter-trend candles, highs and lows
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6. Trending market
Even though the movement is not as strong as it is in an impulsive market, the fact that the
market is trending creating highs and lows higher than the previous ones (or lower depending
on the case) proves that the trend is healthy.
Note that impulses must be much larger than pullbacks. It is also safe to repeat that the more
vertical is the trend, the stronger will be the movement in this direction.
In these cases, the trade will be open according to the current trend, as the strength is still
there.
Examples: Trending market
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7. Corrective market (Ascending/descending channels)
Increase or decrease of the price in a long amount of time. They are made of a lot of
candles, and their tilt is almost non-existent (almost flat). This market tells us that it is
mandatory to be cautious as the trend has lost its strength, and it is probable that the market
will go on the opposite side. Remember that, unlike a trending market, a corrective market is
made of small impulses and large pullbacks.
The condensed corrective movements (which last between 15 - 30 candles) are called ascending
and descending channels. In these cases, the trade will be open against the current trend as
the previous strength is over.
Examples: Ascending/Descending channels
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8. Trend VS ascending/descending channels
An ascending or descending channel, as previously mentioned, tell that the market doesn’t
have the required strength anymore to pursue its direction and will probably go the opposite
way. On the other hand, a trend is a movement which is strong enough to pursue its direction.
Both are alike, they will create higher highs and lows in a bullish market, and lower highs and
lows in a bearish market. Therefore, the difference between both is their tilt. Trends are much
steeper than channels. One means continuation, the other one means reversal.
VS
In the example above, the first picture shows a bearish trend and the second one a descending
channel. The bearish trend is an indication to sell, while the descending channel is an
indication to buy. Note that on the first picture, the movement is steep whereas on the second
picture the movement is flat and proves us its lack of strength.
Video explaining corrective moves vs trends
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9. Range
Lateral move, there is no increase or decrease of the price.
In a ranging market, the best is to stay out. There is no direction, therefore, ranges are
unpredictable and the patterns that might appear are low quality. An easy tip to identify them
is to look on the same level on the left of the current price and see if there are any candles. If
there are, the market is ranging.
Video explaining ranges
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INSIDE BAR
The inside bar is a candle which does neither break the high nor the low of the previous candle.
It is used as an entry point or to move the SL. Between the inside bar and the last high/low, the
last one of both which has appeared in the market will always be chosen as an entry point or to
move the SL.
Personally, we are using the “inside bar” indicator on TradingView. It makes the inside bar
appears in a different color which make it much easier to be identified.
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THE PLAN
80% of the time, the plan is to sit down and wait for patterns to appear. There is, in average, a
trade every two days. Nevertheless, it is possible to experience times when nothing will happen
for three weeks. Success is found when the plan and the patterns are followed. Failure will show
up if out of plan’s trades are taken or if trades are missed. This is why patience is key.
Remember, Quality > Quantity.
For the process of opening a position to become mechanical, three steps must be followed:
1. Direction must be defined
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Impulsive markets (section 5): trades will be opened according to the direction
of the trend.
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Trending markets (section 6): trades will be opened according to the direction of
the trend.
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Ascending/descending channels (section 7): trades will be opened against the
trend.
2. Select the pattern
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Continuation (following sections)
Reversal (following sections)
3. Confirmation
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A break with an impulsive candle (section 3) of 15 pips minimum is mandatory
to confirm and validate the direction and the pattern.
*The break is measure from the last high/low to the closure point of the body of the
breaking candle(s). In the following example, there is a break of 19.6 pips.
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1. Continuation pattern
REQUIREMENTS:
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Trend / Impulsive market
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Counter trend
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Strong break of the previous high/low
ENTRY PLAN: Buy or sell happens in the retest by opening a buy/sell limit order 3 pips
above/below the most recent high/low with 15 pips SL and 45 pips TP.
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Trend: The continuation pattern is the CONTINUATION of the trend. Therefore, the direction
must be clear and defined. The clearer, the better.
Counter trend: Mandatory to have an entry point.
Strong break: It is the confirmation that the market wishes to pursue the trend. For the
impulsive trends, break must be at least 15 pips.
Examples: Continuation
Video explaining the inside bar and continuation patterns
Video explaining corrective continuations
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2. Reversal pattern
REQUIREMENTS:
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Trend
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Ascending/descending channels
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Strong break of the most recent high/low
ENTRY PLAN: Buy or sell happens in the retest by opening a buy/sell limit order 3 pips
above/below the most recent high/low with 15 pips SL and 45 pips TP.
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Trend: The reversal pattern is the REVERSAL of the trend. Therefore, the direction must be
clear and defined. The clearer, the better, to avoid a ranging market.
Ascending/Descending channel: The channel shows that the trend has lost strength and
indicates the reversal movement. The market is saying, with the momentum slowing down,
that it can’t keep up with the trend and eventually, it will change direction to the opposite side.
Strong break: It is the confirmation that the market wishes to change direction. To confirm
the pattern, the break must be at least 15 pips.
Examples: Reversal
Video explaining reversal patterns
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EXIT PLAN (TRADE MANAGEMENT)
Before entering a trade, the SL (15 pips) and the TP (45 pips) must be settled. This is the way to
exit the trade.
Once a trade is taken with one of the two patterns (continuation or reversal), the SL must be
moved while new highs/lows are being made. This is also called Trailing Stop.
This technique aims to reduce risk and secure some profit before hitting the TP.
All trades won’t have their SL reduced, only the ones in which the highs/lows will be broken.
Following the previous explanation, ALL TRADES will either be, a full loss of 1% if the price
touches the SL, a full win of 3% if the price touches the TP or a partial win/loss thanks to the
trailing stop method.
In the picture below, the SL and its movement are shown by the red marks.
Video explaining the trade’s management
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RISK MANAGEMENT
The risk of each position will ALWAYS be measured as a percentage of the account. Not in
pips, not in dollars, in percentage! When calculating the percentage risk, there is the advantage
that the gains become exponential as the gains are increasing. Therefore, it will allow the
trader to gain compound interest from the profit. On the other hand, after a series of losses
the curve will flatten, this will protect the capital, since the losses will be smaller and smaller.
A game of numbers, like the casino
In order to win money in this game, one of the two following criteria must be met:
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Winners are more than losers (win rate)
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Winners are bigger than losers (risk/reward ratio).
TRADE & CHILL's strategy is correct 50% of the time and a risk/reward ratio of 1:3 is used. If
the plan is followed to the letter, it will always pay off. Everything becomes a game of numbers,
a machine to win money.
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PLAN SUMMARY
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EXAMPLES (Image gallery)
1. Impulsive movements
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2. Trending market
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3. Ascending/Descending channels
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4. Continuation
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5.
Reversal
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